An Economy and Budget That Works - Part One

An Economy and Federal Budget
That Works for Working Families
What the Next Administration Should Do
Part One

(I’m going to produce my own prescription for economic change in the United States. This section, about health care and military spending, is part one. Later pieces will be about climate change and green jobs, unions, Social Security and more.)

Recessions are commonly experienced in two ways. Economists measure them; working people and their families endure them. The recession that we are in now, precipitated by the bursting of the housing bubble, will get worse. How much worse will be a subject of debate among economists, now and over the next few years.

But workers will not be attempting to measure the recession; they will be trying to live through it. Workers will lose jobs. Unemployed workers will face lengthening periods of unemployment and loss of individual and family health care coverage. Workers with jobs will still get paychecks, but paychecks with diminished purchasing power. And health care costs will keep rising.

Congress and President Bush have passed and signed a stimulus package, but it won’t be enough. It won’t restructure the federal budget, it won’t support the creation of millions of good, green jobs over the long-term, and it won’t lead to universal, affordable health care in the United States. Getting there will require a new president promoting new economic and social policies.

Health Care

A recent study by the Center for Economic and Policy Research (CEPR) shows that ending the role of big drug companies in conducting clinical trials is one way to begin cutting health care costs. The monopoly that big Pharma currently maintains over the data generated from those trials ultimately costs consumers and taxpayers billions. That data, says co-author Dean Baker, rightfully belongs in the public domain and would allow the FDA to make better regulatory decisions and help prevent the wasteful duplications of drug testing and marketing that turns decisions about treatment into competition between drug advertisers.

The study, “The Benefits and Savings from Publicly-Funded Clinical Trials of Prescription Drugs,” released in January, shows that public funding of trials, combined with a mandated reduction of 40 percent in the prices paid for drugs by Medicare (bringing prices in line with those paid by the VA), would save $50 billion over a ten-year period. If state and local governments also had corresponding reductions in the prices paid for prescription drugs, their ten-year savings would be over $120 billion. If these price reductions were applied to the private sector as well, they would total more than $900 billion over the same period.

Such savings would be a big step toward reigning in the escalating costs of health care. It would also end the drug company monopoly over data from trials, making all information available to the FDA, the public and other researchers.


Spending for War and Weapons

Last year, CEPR commissioned Global Insight to do an analysis of the long-term effects of increased military spending on the wars in Iraq and Afghanistan. That study, “The Economic Impact of the Iraq War and Higher Military Spending,” published in May, showed that an early stimulus provided by that spending would begin to turn negative after five years and worsen in succeeding years.

In other words, the result of spending approximately $135 billion for war in 2003 provided a small immediate stimulus, but will begin to result in job losses in specific sectors of the economy (almost 45,000 lost in manufacturing) by 2008. Continuing war spending worsens the effect—the study projects that by 2013 more than 450,000 jobs will be lost across most sectors of the economy.

Any president trying to make policy that will strengthen the economy and create good jobs will have to deal with the damaging long-term effect of spending for war and supporting a bloated military budget.

Among the worst offenses of the current military budget is the sustained multi-year spending for weapons systems that are inappropriate for the current mission of the military, inefficient and/or faulty. These multi-billion dollar programs are the direct consequence of the revolving door between the Pentagon and defense contractors.

New defense priorities that reduce the overall military budget—the United States currently spends more on the military than the combined spending of the rest of the world—would free hundreds of billions of dollars over the next decade for housing, education, public transportation and other infrastructure spending. As things now stand, the U.S. military budget is probably the most effective mechanism ever developed for the transfer of wealth from taxpayers and working families to the executives and shareholders of multi-national corporations. Call that mechanism "tax workers, buy weapons (TWBW)."