Matt Yglesias

Context for the Baucus Plan

I hope that my bona fides as a Max Baucus detractor are not seriously in doubt. And as a Max Baucus detractor, I certainly have my criticisms of the plan he put out. A plan that’s relatively stingy to working Americans would be more forgivable were it not also so friendly to industry. Deficit concerns would be easier to take seriously if not for Baucus’ willingness to cast such worries aside in order to pass conservative bills in the past. It’s not a flawless piece of legislation and its flaws aren’t in there for good reason.

That said, I think a lot of the blog response to this proposal is overblown. There’s just no reason to think that the system envisioned by Baucus would be either a political or a substantive disaster. Instead, it would create something comparable to the situation that currently prevails in Switzerland or Massachusetts. Is that great? No, it’s not. Health care in Massachusetts is substantial worse than health care in any number of foreign countries. That said, the Massachusetts health care system is better than the health care system that exists in any other American state. Similarly, if it were up to me Switzerland is about the last country I would choose to emulate. In terms of excessive costs—spending that lines the pockets of medical providers with little real medical benefit—it’s worse that everyone except . . . the United States of America.

And there’s the rub. The status quo in the United States is really bad. Baucus’ plan would make it better. There are people right now who could use health insurance, but they’re too poor. Baucus would make many of them eligible for Medicaid and more of them eligible for subsidies to let them afford private insurance. Hopefully something better than this plan can be worked out between the merger of the Finance bill and the HELP bill and the conference committee and all the rest. But even in its meager Baucusish form, the health reform currently on the table would be the biggest piece of progressive social policy in decades.

The Swiss Model

Geneva, Switzerland (my photo available under cc license)

As Paul Krugman says in today’s column, if you actually want to analogize Barack Obama’s health care plans to something the best country to look at is probably Switzerland which has a pretty similar system. There’s no crazy socialism there, nothing horrible happens. One should say that by the same token from my point of view there’s nothing particularly great about the Swiss system. It’s basically like American health care if you patched up some of the very worst aspects.

This is the sad reality that’s gotten neglected in the sturm und drang of the health debate. What’s being proposed is really quite moderate. You could imagine a world of go-for-broke reform in which you ran the risk of something terrible happening in order to achieve the possibility of something great happening. But that’s not what’s on the table. Instead, we’re looking at some tweaks with real-but-modest upside and no real downside. And yet to listen to cable news you’d think it was the end of the world.

Direct Democracy in Switzerland

Reader E.R. pointed me to a helpful Joe Matthews op-ed in the Sacramento Bee that attempts to explain why direct democracy works better in Switzerland than in California:

Under initiative-based direct democracy, California politics has become a shooting range that never closes. Dozens of initiatives are filed each year (the record is 152 in 2005). Since Johnson’s time, more than 105 initiatives have been approved by voters. In contrast, the referendum – a ballot measure that allows citizens to reverse an act of the Legislature – is rare. According to the Secretary of State’s Office, only 64 referenda have even been filed in California since 1911.

Why the disparity? The state constitution makes initiatives easier to qualify for the ballot than referenda (the number of signatures required is the same, but sponsors get more time to gather signatures for an initiative) and just as easy to pass at the ballot. A simple majority is all that’s needed.

Swiss direct democracy works in the opposite way. It’s based not on the initiative but on the referendum. The Swiss constitution makes initiatives twice as hard to qualify as a referendum. A referendum needs only a simple majority of votes to pass, but an initiative must achieve a “double majority” to succeed – a majority of the national vote, and majorities in a majority of the country’s 26 cantons, or provinces. Initiatives are thus much less common than referenda because they so often fail – the success rate of Swiss initiatives is just 9 percent. (In California this decade, a historically difficult time for passing initiatives, voters have approved 30 percent of initiatives).

I’d want to see more research before definitively accepting this theory, but it makes sense. And it goes to show that differences in institutional structure can make a very big difference.

Why Does Direct Democracy Work in Switzerland?

Stadttheater, Berne, Switzerland (my photo, available under cc license)

With Brad DeLong’s caveats I agree with him that Christopher Caldwell’s FT article on the fiscal fiasco in California is quite good. But I do have one additional doubt. Brad wasn’t happy about “a pointless and unfair slam at Venezuela.” The slam in question was Caldwell’s “The state’s laws are shaped by plebiscites to a degree unmatched outside of Venezuela.”

That’s not, however, just pointless. It’s actually wrong. California’s laws are shaped by plebiscites to a degree unmatched outside of Switzerland. And yet Switzerland is about as well-governed as anyplace else you care to name. It seems to me that that is what critics of California-style direct democracy need to grapple with. Swiss political institutions are different from California in a whole bunch of ways. But they both rely heavily on plebiscites. And the results are quite different.

The Absurdity of Nescafe Advertising

I contended back in June in response to a question on le bac that it is, in fact, absurd to desire the impossible. John Holbo struck back citing the Nescafe ad reproduced here, which he says “crosses over into Kierkegaardian territory.”

It is absurd to expect to get more from something than you think it is possible to get from anything. Especially if it’s instant coffee.

Still, I don’t think it is absurd to want coffee that would be better than life itself could possibly be. That would be a damn fine cup of coffee.

I think this is exactly backwards. It’s perhaps misguided to have unrealistic expectations about your instant coffee. But it’s not absurd to want an instant coffee that far exceeds the performance of any real-world instant coffee. And, indeed, with its Nespresso line I would say that the Nestle corporation has in fact succeeded in far exceeding my instant coffee expectations, albeit at a price that’s higher than I’m willing to pay. But to want more than “the most” is absurd. It’s on a par with wishing that you could put your coffee in a mug shaped like a square circle.

The larger story here is simply that Nescafe ad copy is often absurd. For example, when I visited Nestle HQ outside Geneva on my junket to Switzerland they had this in their office:

And also this puzzling statement of overall corporate philosophy:

Ever since I saw that last one, “creating magical enjoyment you feel good about” has been my informal mission statement here on the blog.

Another G-20 Accomplishment: Tax Haven Crackdown

Normally, a big international conference achieves nothing at all. So it’s really quite extraordinary that the G-20 meeting appears to have produced several significant achievements. One of them, as Mark Kleiman points out, is the success of France and Germany in pushing an agreement on tax havens:

I have no idea whether there’s any meaning behind the pronouncement from the G-20 summit that the era of banking secrecy and tax havens is over. But if there is, that’s extraordinarily big, and extraordinarily good, news. The ease with which the wealthy can evade taxes on unearned income as long as Switzerland and the Caymans and Macao are there to help puts a limit on the extent to which redistribution via taxation is feasible.

Back in November I was the beneficiary of a very generous junket to Switzerland during which time I was able to more fully familiarize myself with this issue. And while I’m pretty sure I was supposed to come away more sympathetic to the Swiss position, and am even willing to consider reversing my position on this in exchange for more business class plane tickets and another week at the Mandarin Oriental in Geneva, the Swiss position is totally wrong. I mean, it makes great sense for Switzerland. But there’s no good reason for the rest of the world to put up with it.

As for how consequential the announcement it, my understanding is that a fair amount of this could pretty easily be curbed purely through EU action unless some outside power were to lean on the EU on behalf of the tax havens, so that even if the other major powers are only nominally on board Switzerland’s party may be over. The tax havens that aren’t Switzerland or Luxembourg are in better shape even in the wake of this announcement, but I believe the Obama administration is also serious about this issue which will spell trouble for Western Hemisphere havens. The main dispute between Obama and Sarkozy/Merkel was that the Americans were taking the accurate view that this really has nothing to do with resolving the economic crisis, whereas France and Germany seemed a little bit oddly fixated on it.

But either way, a crackdown would be a good thing. And it’s worth observing that even though there are valid criticisms to be made of the policies Obama has pursued domestically, as well as equally valid—though different—problems with the policies of the major European governments, the overall caliber of the global policy response has been pretty good. Most countries are mostly doing the right thing. Cooperation is falling short of what one would want, but there’s a definite trend toward net cooperation rather than “beggar thy neighbor” stuff. The less cuddly global powers such as China, Russia, and Saudi Arabia are all working constructively. And the key western leaders—Obama, Merkel, Sarkozy, and Brown—are doing a good job of focusing on areas of overlapping potential agreement rather than posturing over disagreements.

Glacial Melting May Force Redrawing of International Borders

I know people on the right who are aware that climate change is real and problematic, but who somehow don’t really feel that engaging with the denialists on their side and trying to educate people is an important thing to do. It seems like an odd point of view to me. Meanwhile, in the alps:

Melting glaciers in the Alps may prompt Italy and Switzerland to redraw their borders near the Matterhorn, according to parliamentary draft legislation being readied in Rome [...] “This draft law is born out the necessity to revise and verify the frontiers given the changes in climate and atmosphere,” Narducci said. “The 1941 convention between Italy and Switzerland established as criteria [for border revisions] the ridge [crest] of the glaciers. Following the withdrawal of the glaciers in the Alps, a new criterion has been proposed so that the new border coincides with the rock.” [...] Narducci said the same negotiation will be proposed to France and Austria.

Fortunately, boundary adjustments between Western European countries are almost certain to be handled in an amicably bureaucratic manner rather than a violent one thanks to the success in turning international relations within Europe into a rule-governed enterprise. The rest of the world, however, doesn’t have these kind of luxuries and as de-glaciation unsettles established patterns of land- and water-use we’re going to see some very serious political problems.

Is Switzerland a Model of Health Care Compromise?

Ezra Klein writes that Republicans are drawing the lines of opposition to the progressive health care agenda in pretty narrow terms:

Does that matter? It’s hard to say. Rhetorically, the GOP has staked out a very narrow corner of opposition. Last week, Mitch McConnell, Chuck Grassley, Mike Enzi, Orrin Hatch, and Judd Gregg — essentially, all the Senate Republicans with jurisdiction over health reform, and McConnell — co-signed a letter to President Obama. I’ve obtained a copy, and it’s up for download here. They draw two lines in the sand. First, they warn against using the budget reconciliation process to pass heath care. Doing so would “make it difficult to gain broad bipartisan support” and “do a disservice to this important issue.” Substantively, they fear a public insurance option. “Forcing free market plans to compete with these government-run programs would create an unlevel playing field and inevitably doom true competition,” they say. “Ultimately, we would be left with a single government-run plan controlling the market.”

When I was in Switzerland, I learned a bit about their health care system. In essence, it looked like the plan Democrats were talking about on the campaign trail but without the public option. And that, it seems to me, would be compatible with what the Republicans are saying here. And just in time, Regina Herzlinger from the Manhattan Institute chimes in at the Corner in praise of Switzerland:

Republicans, full of complaints about the Obama plan, have not coalesced around a viable alternative. Mired in fantasies about a replay of 1992, they think they can face down universal coverage and that their impossibly wonky ideas, full of tax takeaways and mysterious high-risk pools, will defeat Obama’s brilliantly clear proposals. [...] There is only one viable Republican solution: A consumer-driven system that passes the employer tax exemption and funding onto consumers, so they, and not the government, control all health-care costs. Switzerland, which enables universal coverage without any governmental insurance through this system, benefits from costs 40 percent lower than the U.S. and, unlike the single-payer systems in the U.K. or Canada, excellent results for the sick.

Obama has formally committed himself to the idea of a Medicare-like public option, but the availability of such an option is not one of the administration’s eight principles for health reform. This suggests the possibility of a compromise if the GOP wants it. My strong guess is that if leading Republicans were really willing to offer a Swiss-style system as a compromise measure, that Democrats would leap at the chance to take a clean legislative victory and start haggling over funding mechanisms rather than fight to the death over a public plan.

At the same time, for that very reason until such an offer is made I think it’s vital to fight like crazy for a public plan since it’s the risk that such a plan would be rammed through the Senate via budget reconciliation that gives conservatives their incentive to come to the table and strike a deal over something more modest.

All Your Questions Answered

In case you were ever wondering whether guys who pilot boats for a living have big white beards even when their boats are on Lake Geneva rather than the icy waters of New England:

As you can see, the answer is: “yes.”

The End of Switzerland

A few days ago, John Quiggin wrote the following:

Not only major institutions but whole national economies are up for grabs now. The national bankruptcy of Iceland seems likely to followed by something similar for Switzerland. As Citi itself points out, UBS and Credit Suisse are bigger, relative to the Swiss economy, than Kaupthing was for Iceland. Felix Salmon (also predicting doom for Citi, has been all over this).

Given a failure and rescue, Switzerland would probably have to follow Iceland in a rush application to join the EU (which might have its hands full rescuing some of its own members). It’s a safe bet that the end of secret bank accounts, “wealth management” through tax minimisation and the like would be part of the price. The UK isn’t quite as vulnerable, but seems likely to be forced into the eurozone More »« Less) And this will be accompanied by a big structural shift away from the dominance of these economies by the financial sector.

Fortunately, this blogger has recently been on a trip whose whole purpose was to inform him about the views of the Swiss political and business elite. And I have to say that they all struck me as remarkably sanguine on this point. I have no idea how to assess the solidly of UBS’s risk exposure and everything else. But on the rest, I can say that I had no understanding pre-trip of the weirdness of Switzerland’s relationship with the EU.

But basically, Switzerland isn’t in the EU. Not on the Euro, not a member. But there is free trade between Switzerland and EU states. And also free movement of people, à la the Schengen Agreement. This sets Switzerland up nicely to serve as a kind of “Delaware of Europe” — suggesting itself as a nice tax haven for wealthy European individuals, and also as an appealing location for the European Headquarters for an Asian or American firm. Zurich or Geneva becomes as good a place as any from which to conduct EU-wide business operations, but without the burden of paying the high taxes to support European welfare states.

It’s nice work if you can get it, but obviously a lot of EU officials wish Switzerland couldn’t get it, and have been pressuring Switzerland to participate in some “tax harmonization” vis-a-vis the rest of the Union. They don’t, however, really have a great deal in the way of levers at their disposal with which to make this happen. But if UBS and/or Credit Suisse were to need serious rescuing, then, as Quiggin observes, the situation would change a great deal. Meanwhile, EU entry for Switzerland would put a great deal of additional pressure on the country’s already fraying tradition of government by a four party grand coalition.

Monday Conflict of Interest Blogging

Just for the record, the following appears to be the policy agenda of Swiss business who may or may not have bought my loyalty with a trip to their Magical Land of Chocolate.

• Rolex wants us to clamp down on counterfeiting of their product.
• Swiss Re wants you to believe that their business isn’t exposed to the kind of systemic risks that brought the financial sector down.
• Swiss business in general doesn’t want to be forced into the EU’s tax harmonization scheme.
• Nestle doesn’t want people to give bottled water a hard time, and thinks we should reduce trade barriers in agriculture.
• Swiss private bankers want to maintain strong bank privacy rules.

So that’s the word.

UPDATE: Note that I’m not endorsing these claims, just passing them on.

Back in the USA

After a nice Geneva-JFK flight, I was supposed to transfer to a flight to DC but they all got canceled on account of the rain. And by the time I got around to it, there were no slots left on the SUPERTRAIN. Fortunately, Chris Hayes was sufficiently un-jetlagged to safely pilot a rental car to DC. And so now I’m back! And tired. But mostly back. And back on to your regularly scheduled blogging.

Meanwhile, many thanks to everyone at the American Swiss Foundation for making my recent trip possible. It was both an extremely enjoyable junket, and also massively informative. And, yes, for readers of the blog this does mean you ought to be scrutinizing every post for a sign of “dual loyalties” or that my policy views are mere cover for the nefarious Swiss agenda. What if, for example, my belief that it would be smart to increase tax rates on richer Americans in order to finance more generous social services is really just part of a plot to increase demand for tax shelters?

Small Government

Some observations from Switzerland that may be relevant to the ongoing talking point from some libertarian institutions that a lack of fealty to small government orthodoxy somehow did the GOP in. They have over here a party of the populist right called the Swiss People’s Party that takes a Euroskeptic, immigration restrictionist line that on economics generally favors low taxes, deregulation and stingier social services. At the same time, their main electoral base of support is among Switzerland’s highly subsidized agricultural communities. So they strongly support those subsidies. This doesn’t really “make sense” as a matter of philosophical consistency, but the political logic is clear enough — it’s a mix of issue positions designed to appeal to the interests and attitudes of rural Switzerland.

At the same time, there’s a party called the Free Democrats who follow the standard European liberal line of being pro-Europe, welcoming to immigrants, and favoring low taxes and deregulation. These guys have strong support from the Swiss business community. As a result, it has been known to “abandon its liberal values at times, e.g. by its support of import protection for medicine or of the expensive 2002 government bailout of the failing national airline, Swissair.”

Again, the philosophical logic is lacking but the political logic is very clear. A party has a basic orientation, that orientation gives it a constituency, and then a successful party is going to need to stand up for the interests of its constituency.

In the US, we have only two political parties and a much larger and more diverse country. Consequently, you don’t see as much of the systemic sectoral biases like that. Instead, what you get is that Democrats and Republicans compete vigorously across the country on a fairly consistent left-right axis, but in the states that benefit from farm subsidies everyone’s for farm subsidies while in Michigan everyone’s for auto bailouts and in Delaware everyone shills for credit card companies and so forth. But the basic principle is the same — politicians have ideologies, but they also have constituents and their constituents have interests, and to succeed in politics you’re going to have to serve those interests and that means you can’t be a really rigid ideologue. You’re never going to have a pure free market politics getting anywhere.

A Trolleybus Named Desire

Someone in comments quipped sarcastically when he read I was going to be in Geneva that he was looking forward to jejune commentary on Geneva public transit. I don’t really know what jejune means, but it doesn’t sound good. At any rate, as this alert fellow noticed, I don’t like to go anywhere without offering uninformed remarks on local transit issues.

So as for Geneva, let’s start with the trolleybus. There seem to be quite a lot of these around, and I also saw a bunch in Nizhny Novgorod and a few (but only a few) in the Boston area but I think they’re generally rare in the United States. The idea is that you take a bus (albeit in Geneva a long articulated bus) and power it by electricity rather than gas or diesel. The electricity is supplied not via an awesome new engine/battery technology, but rather by an overhead wire à la a streetcar. This combination gives you the low emissions of a streetcar, the low operating costs of a streetcar, and much of the air of permanence of a streetcar but with fewer of the fixed startup costs of a streetcar. In other words, it’s some pretty useful technology that would probably be worth considering in many cities for the most popular bus routes.

That said, whenever I see a low emissions modification of a bus (trolley bus, bus powered by natural gas, etc.) I worry that forests are getting missed for the trees. Even if you take the dirtiest bus imaginable, two dozen people taking the bus to work every day creates much less pollution than two dozen people driving two dozen cars. And the availability of a good bus commuting option for some of your city’s citizens also reduces the volume of car ownership per capita which has further pollution-reduction effects. In other words — getting people to take the bus, any bus, rather than drive is a big win for the environment.

Under the circumstances, the precise environmental quality of your buses should be a distinctly secondary consideration. Your primary concern, even in strictly environmental concerns, shouldn’t be trying to reduce the footprint of individual buses it should be trying to make the bus a more appealing option. Spending marginal dollars on increasing the frequency and overall cleanliness/appeal of your buses and bus shelters can have major environmental impacts. So can creating and enforcing key stretches of dedicated bus lanes. Better maps to help sporadic users and new residents come to understand their bus network are nice. And using modern technology to allow shelters to provide digital readouts showing how soon the next bus is coming (as the DC Metro does for trains, and as a few of the shelters here in Geneva seem to do) makes the whole enterprise lower stress.