Trump’s State Of The Union Should Launch ‘Middle Class Capitalism’

Trump’s State Of The Union Should Launch ‘Middle Class Capitalism’

Middle Class Capitalism isn’t anti-business. It isn’t even anti-big-business. The simple aim is greater competition, fair markets, and higher wages for the American people.
Willis L. Krumholz
By

Whether his state of the union address this year is written, delivered in person to Congress, or delivered in person elsewhere, President Trump should use it to launch a new program called Middle Class Capitalism. Here’s an overview of what that is, why it’s what America needs right now, and why it fits Trump’s platform and style.

The Economy

Median inflation-adjusted U.S. wages have barely budged for 30 years. This problem has especially existed during the prior two presidential administrations, and it is high time we do something about it.

The tax reform bill is a start. It made corporate tax rates competitive with the rest of the world, and is causing jobs and investment dollars to stay in America. But that isn’t enough. Because of Senate rules, only the corporate rate cut was permanent. The individual tax cut and small business tax cut were not made permanent.

It is time to make those cuts permanent, and look for new ways to cut middle-class and working-class taxes. That will raise wages for the average American. Going forward, any tax cuts to business have to be paid for, with cuts to wasteful spending and corporate welfare.

Another factor suppressing American wages is the rise of oligopolies and monopsonies—corporations that have too much market power over their customers or suppliers. Our current antitrust law uses rules crafted a century ago, and now focuses too narrowly on the effects a merger or trade practice would have on near-term consumer prices.

But anticompetitive practices also lead to lower wages for American employees, due to warped markets that play out on a large scale in the long term, and a stagnation in the competition that fuels American ingenuity and productivity—two essential ingredients for sustainable and shared economic growth.

Aside from lax antitrust enforcement, low interest rates have allowed companies to buy competitors with cheap debt. Unsurprisingly corporate credit as a percent of America’s economic output is at a historic high. This record merger activity of the last 30 years has consolidated market power and reduced the competition within industries. Companies have even used cheap debt to buy up would-be competitors—especially in the case of the tech industry—before these potential adversaries can get too powerful.

That’s why Trump should announce a new anti-cartel agenda, branded “Middle Class Capitalism.” Cartels in any form should no longer be allowed. Our antitrust laws should be updated to fit with the 21st-century economy. New antitrust enforcement should, with a special eye to big tech companies, hamper the practice of using acquisitions to block potential competitors. Courts and regulators should be required to examine the effects industry consolidation has on wages paid to employees, and the negotiating power a company has over its suppliers.

Middle Class Capitalism isn’t anti-business. It isn’t even anti-big-business. The simple aim is greater competition, fair markets, and higher wages for the American people.

In his address, President Trump should also ask Congress to create a new apprenticeship program—in place of a four-year college degree—that focuses on providing on-the-job technical and skilled trades education to our wonderful young people. As part of this push, America should invest in infrastructure specific to boosting our manufacturing base, especially in urban and rural areas blighted by poverty and crime.

Health Care

America’s health-care system is also plagued by cartels, and too big a chunk of Americans’ paychecks goes toward paying medical bills.

President Trump’s Middle Class Capitalism agenda must aim to specifically crack down on anti-competitive practices within the health-care industry that reduce quality and drive up costs for consumers. Too often, hospitals—whether for-profit or legally designated as not-for-profit—seek to restrict competition. Outdated laws lobbied for by wealthy hospitals limit the supply of new hospitals. Hospitals with monopoly power have also struck secret deals with insurers, which harms competition, pushing up the cost of insurance and resulting in higher medical bills.

This directly leads to higher prices for Americans in areas with less competition. Adding insult to injury, poorly thought-through provisions in Obamacare also increased hospital mergers and acquisitions, creating more monopolistic power that harms Americans with higher prices and reduced access, and reducing the incentives for doctors to open their own practice, even though that leads to lower prices for consumers. Middle Class Capitalism would see this big-hospital cronyism come to an end.

Cronyism exists in other areas of health care too, needlessly pushing up cost. For example, Middle Class Capitalism would end the kickbacks set up between hospitals’ “group purchasing organizations” and drug companies, needlessly driving up drug prices. Middle Class Capitalism would also examine drug-pricing, and seek to reform drug patenting rules.

Middle Class Capitalism would also use simple measures to create greater competition and more transparency. Yes, Americans need more choice when buying health insurance. The Trump administration has worked toward this, and Congress needs to repeal and replace Obamacare. But reforms cannot end there. Choice doesn’t just involve your health insurance company, it also involves the doctor’s office.

Here, the president should start out by talking about the stress everyday Americans feel when they receive a medical bill in the mail. We don’t know what the hospital is going to charge us for, or how much money the provider is going to charge. For a lot of Americans, the amount of the bill received is always far more than they deem fair, or could have imagined.

That’s because the current system we have today—at least partly caused by longstanding government incentives—makes it almost impossible for consumers to easily see the price of basic health-care procedures.

Just imagine pulling things off the grocery store shelf and not being able to see the price. What would happen to the cost of milk and eggs? That’s why one health-care procedure might cost $1,000 in one hospital, but cost many times as much at a hospital only miles away. That’s also a big reason health-care costs have risen so much over the last several decades, consistently outpacing the overall price increases in our economy caused by inflation.

It’s currently almost impossible for consumers to easily see the price of basic health-care procedures.

With more Americans depending on high-deductible plans, it is absolutely imperative that consumers be able to shop around for basic procedures. A simple solution, already applied in several countries with successful free-market medical systems, might do the trick. President Trump should call on Congress to mandate that providers publish the clear and standardized out-of-pocket prices for a routine visit to a medical professional, and the clear and standardized out-of-pocket prices of basic procedures.

Obamacare did include a vague provision about price transparency—its implementation was heavily fought by the providers lobby, and only recently put into place by the Trump administration a decade later. But the new price lists hospitals provide are, purposefully, completely unintelligible and still make it impossible to compare prices.

Instead, “healthcareprice.gov” should be funded and set up by a new “Office of Competition” within DHHS, to allow consumers to easily compare providers’ out-of-pocket prices against each other. Providers’ lobbies would raise Cain, but such is the behavior of an entrenched lobby. Coupled with this, Trump should push Congress to expand health savings accounts, a pre-tax pool of money that you can use to shop around for health care.

Finally, Trump should say that the American people have been lied to. They have been told that Republicans won’t protect Americans with preexisting conditions, yet nothing is further from the truth.

People with pre-existing conditions often aren’t able to get health insurance through an employer. Instead, they are stuck in the so-called individual market. But the tax incentive for employer-provided coverage—put in place by Congress decades ago—means that buyers in the individual market are at a disadvantage compared to everyone else.

The tax incentive for employer-provided coverage means that buyers in the individual market are at a disadvantage compared to everyone else.

Democrats said Obamacare would fix this problem, but their law—opting for overcomplicated big government instead of common-sense solutions—attempted to hide the costs of helping Americans with preexisting conditions by making younger, healthier people subsidize Americans with preexisting conditions. When younger and healthier people decided to stay out of the individual insurance market, even if that meant paying a fine, costs skyrocketed, and health care options decreased. This hurts Americans with preexisting conditions.

That’s why the Republican plan makes sure that insurance companies don’t deny Americans with preexisting conditions, and that Americans with serious health issues receive targeted assistance. That is a more honest, efficient, and compassionate way to help Americans with preexisting conditions than is found in Obamacare. The goal should be to bring down costs in the individual market, while directly assisting poorer and older Americans who have costly health issues.

In all these reforms, we need to be compassionate. Health care for poor children should always be provided, and should never be used as a political bargaining-chip. We also need to fight to make sure that Medicaid, the government’s primary health program for poor Americans, actually leads to increased access and better outcomes.

President Trump needs to point out that, too often, politicians are judged by their intentions instead of results. In one example, because providers are undercut by the Medicaid program, Medicaid recipients in impoverished areas have insurance without real health care access. In another example, Obamacare’s expansion of Medicaid to able-bodied adults has crowded out resources for disabled Americans who depend on the program the most. In yet another, states that expanded Medicaid to able-bodied adults have seen increased opioid abuse—because “for as low as a $1 co-pay Medicaid beneficiaries can get up to 240 oxycodone pills that can be resold for $4,000.”

Healthcare has become a highly partisan issue, but it shouldn’t be. Ordinary Americans on both sides want more affordable care and believe in markets, but also want the government to help the weakest among us, especially the disabled and poor children. Capitalism for the Middle Class means busting the cartels, and striking a balance between compassion and affordability.

Trade

Fair and reciprocal trade is also essential to the goal of driving up American wages. Much of America’s overall wage stagnation is explained by the wage stagnation felt by Americans who were or are employed in manufacturing. How to fix this?

Overall, we should want lower global trade barriers to fair and reciprocal trade. But two things stand in the way of that. First, hypocrisy is rife in China and even Europe. Foreign leaders claim to stand for “free trade,” but are really arguing for a system where America is at a disadvantage.

As of 2017, according to the World Trade Organization, the average tariff rate in China was almost 10 percent, in the European Union it was over 5 percent, but in America it was only 3.4 percent. The only way to expose this hypocrisy is to play hardball. This approach is uniquely conservative and Republican. Don’t forget that it was Ronald Reagan who negotiated the 1985 Plaza Accord, which went after Japan for currency manipulation and significantly reduced Japan’s share of America’s trade deficit.

Today, the big cheater is China. Through hacking and other forms of espionage, China steals or attempts to steal secrets from American companies on an alarming scale. When American companies do business in China, Beijing requires that they hand over their intellectual property. And China’s corporate giants—such as telecommunications giant Huawei—were entirely started by replicating American technology and know-how.

But cracking down on Chinese trade abuses won’t be enough to significantly lower our trade deficit. That brings us to the second thing in the way of fair and reciprocal trade. Economics 101 tells us that the trade deficit is a function of our federal government’s overspending, and too low U.S. household savings. This is due to bad monetary policy and spendthrift politicians in Washington, not just bad trade deals.

Any normal country that overspent and ran a huge trade deficit would see its currency fall sharply, and suffer a loss of purchasing power. The only fix would be to produce more goods that the world wanted, and buy less from overseas.

But because the U.S. dollar is the world’s primary reserve currency, dollars flow overseas in exchange for foreign goods, but are never brought back home. Foreign countries—especially including China—are content to sit on our dollars, instead of using these dollars to purchase goods made in the United States. This artificially suppresses the cost of foreign labor, more than would be the case in a “free market.” So the consequences for America’s collective excess are placed on the shoulders of our blue-collar workers.

Again, such a set-up is not “free trade,” nor is it a “free market,” and it has disproportionately harmed blue-collar Americans, even if America overall has benefited from trade.

Monetary Reform

That’s why President Trump should announce that he is creating a presidential commission to examine international monetary reform, and that he will work with our global partners on examining a new monetary system to better promote fair and reciprocal trade.

Another aspect of monetary reform must be ensuring America’s middle class receives a positive return on hard-earned savings. Trump has been critical of Federal Reserve Chairman Jay Powell for his rate-increases, as the president has judged these increases have gone too far, which risks dampening economic growth for no good reason.

That may be the case, but one of the foundations of the middle class is a positive return on savings, and the ability to save money and not lose purchasing power because of inflation. That’s why Trump should also ask that Congress begin to examine domestic monetary reform as well, which would include ditching the Fed’s 2 percent inflation targeting regime, and support passing a bill to audit the Federal Reserve—to ensure monetary policy decisions are being made with ordinary Americans in mind.

Capitalism for the middle class would finally end the practice of policy initiatives that are marketed to hurting Americans, but conveniently are facilitated with corporate power and result in more corporate welfare. Middle Class Capitalism isn’t something new, or radical. It is actually something very old in America, embedded in the core of who we are, as witnessed by names like Jackson, Lincoln, McKinley, Cleveland, and Eisenhower.

It is something that has been around for a very long time. We’ve only just lost sight of it.

Willis L. Krumholz is a fellow at Defense Priorities. He holds a JD and MBA degree from the University of St. Thomas, and works in the financial services industry. The views expressed are those of the author only. You can follow Willis on Twitter @WillKrumholz.
Photo White House / public domain

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