Tuesday, October 18, 2011

The Inference of Political Fraud

How big a deal is it that the Obama administration isn’t going to implement the CLASS provisions of the Affordable Care Act (i.e., the voluntary insurance program for long-term health care) on the ground that it has suddenly discovered that they’re actuarially unsound? Not very big if you believe liberal pundits. Jonathan Cohn, for example, thinks that the unsustainability of CLASS just shows that the individual insurance mandate in the rest of ACA is good public policy. Kevin Drum thinks that the Obama administration’s pulling the plug on CLASS just shows how seriously it's taking its administrative responsibilities. Neither Cohn nor Drum entertains the thought that the administration's decision not to implement CLASS casts any doubt on the political legitimacy of ACA as a whole.

If you ask me, Megan McArdle gets closer to the heart of the matter. “Are we really to assume,” she asks, “that . . . these were not stupid gimmicks put into the law to . . . ‘make an expensive program seem deceptively cheap’, but rather, represent the sober and considered judgement of Democratic legislators and the Obama administration about sound fiscal policy?” You can’t blame her, I submit, for harboring dark thoughts about Democrats' motives.

Recall that Democrats sold ACA to us on the promise that it was not only “paid for,” but incorporated funding mechanisms that would actually decrease the deficit by some $140 billion. Yet, as many people pointed out at the time, half of the deficit reduction was a function of the fact that CLASS provided for the collection of premiums within the CBO’s ten-year budget window and grossly unfunded payouts after the window closed. It’s perfectly clear that a private actor marketing securities on the basis of representations about the issuing firm’s finances anywhere near that misleading could expect to do some hard time for securities fraud.

Doesn’t the inclusion of CLASS within ACA before its enactment and its summary withdrawal afterwards raise a similar inference of an intent to deceive on the part of Obama and congressional Democrats? Maybe people like Cohn and Drum don’t think so on the grounds that our disclosure standards are, and probably should be, a lot more lenient in politics than they are in the marketplace under securities law. But are they lenient enough to excuse the gimmicky accounting Democrats used to market ACA in the political arena?

You tell me.  Maybe this comparison will help you get your bearings. Say what you will about the wisdom and execution of George W. Bush’s decision to invade Iraq, but judging by its procedural pedigree it originally looked like a perfectly legitimate decision. Bush had secured huge congressional majorities authorizing him to prosecute the war before it commenced that Congress never rescinded after the going got tough. Yet when the WMD stockpiles didn’t turn up in Iraq after the invasion, and it came to light that the intelligence about their existence was a lot less conclusive that we’d been led to believe, a lot of people started questioning the Iraq war’s legitimacy on the ground that Bush had secured the country’s consent to go to war under false pretenses.

That’s when, even within the halls of Congress, you started hearing the “Bush lied, people died” refrain.  To the many people adding their voice to it, it didn't much matter that, as far as I know, no evidence has ever come to light suggesting that decision-makers within the Bush administration didn’t actually believe that Saddam was stockpiling WMDs or should have known on the basis of the available evidence that he wasn’t.  Analogous facts wouldn't come close to raising an actionable inference of fraud under securities law or the common law.  But in this case a lot of people were more than happy to apply disclosure standards to politicians that were much more exacting than those mandated by civil (much less criminal) law.

Is there any doubt about where you'd end up if you applied anything like the same standards of truth in political advertising to the people who gave you ACA?


Anonymous said...

Your post reminded me of two words: Emperor's clothes.

The emperor is not wearing any clothes and we all know it. But only one-side of the aisle will say so.

Anonymous said...

Obama lied! The liberal wing of the Democratic party died!

Perry said...

I think you're giving the Democrats and the Obama White House too much credit. Their not even capable of committing fraud because that requires someone making events conform to their intentions. PPACA passed without anybody ever taking ownership of, and making themselves accountable for, the exact shape it ended up taking.