The GOP’s new supply-side bribery style of governing
Donald Trump is taking a victory lap after goading Carrier Corp. into saving 800 Indiana manufacturing jobs, while shipping 1,300 others off to Mexico. Some are calling the corporate welfare deal an irreplicable PR stunt. But in fact, the Carrier pact could become the modus operandi of conservative governance in the Trump era: achieving political goals through supply-side bribes.
During his presidential campaign, Trump vowed to crack down on corporations that sent jobs offshore. He made Carrier the poster child of outsourcing, threatening to slap tariffs on any air conditioners it exports back into the United States. After winning the election, Trump evidently got on the phone with the head of Carrier’s parent company and, with the aid of Vice President-elect and current Indiana governor Mike Pence, brokered a deal to save just enough American jobs to call it a political victory.
Trump’s Carrier deal rested on corporate socialism-flavored carrots and Mafioso-grade sticks. The carrots were $7 million in tax breaks from the state of Indiana — in other words, a nearly $9,000 subsidy paid to Carrier for each job saved. Helping Trump fulfil a campaign pledge also put Carrier on the good side of the temperamental incoming president.
The sticks were, according to the New York Times, the “wrath of the incoming administration.” Carrier could have faced stiff new tariffs on its products. And its parent company, United Technologies, could have seen lucrative defense contracts revoked. Trump maintains that he never explicitly threatened United’s $5 billion in Pentagon contracts. But like any good high-pressure threat, the implication was probably evident enough without actually saying, Shame if something happened to your defense contracts… “I never mentioned it,” Trump nearly boasted. “I didn’t feel I had to.” The stick spoke for itself.
The Carrier deal is remarkable in part because it represents an abrupt conservative retreat from faith in free-market, invisible hand capitalism. The new administration has now unabashedly engaged in industrial policy, intervening into the economy to sway the decision-making of a private business. “The free market has been sorting it out and America’s been losing,” Pence told Carrier, an astounding admission for a market-worshiping Republican.
This isn’t the only area where Republicans are abdicating from the free-market gospel. A key campaign pledge of Trump and every other elected Republican has been to repeal Obamacare — a centrist take on health reform dependent on competitive markets of private insurance companies to expand health coverage.
But Republicans in Congress are discovering that getting a clear political victory out of repeal is tricky. Because they have no clear replacement ready for Obamacare, Republicans want to pass a repeal bill now while delaying Obamacare’s actual end date by two years or more. This would ostensibly buy them time to do what they haven’t been able to do in seven years: come up with a viable alternative for comprehensive health reform.
The problem, however, is that this strategy — dubbed “repeal and delay” — would likely trigger an insurer stampede out of Obamacare’s individual marketplaces much earlier than the date of the GOP’s self-created Obamacare cliff. Insurers must decide whether to participate in the marketplaces in 2018 within the next five months. And if Republicans press ahead with a delayed repeal, what sensible private company will want to stay aboard a sinking ship?
This threatens to toss more than 10 million people off of their health insurance plans while the GOP comes up with an Obamacare substitute. That would inflict a lot of political pain, sullying the Republicans’ anti-Obamacare triumph.
To spare themselves the political harm from repeal’s human cost, Republicans are talking to insurance companies to goose them into staying aboard Obamacare while the GOP torpedoes it. Like with Carrier, Republicans are trying to find a way to make it worth the companies’ while to lend a hand toward conservative political goals. According to one GOP lobbyist, Republicans “want to pump money back in to the insurers without appearing like they’re giving them a handout or bailing them out.”
Repeal-and-delay’s hidden bailout sidecar might not be as blatant as Indiana’s tax concessions to Carrier. But make no mistake: a bailout is exactly what it would be. The Hill reports that the inducements for insurers to ride out Obamacare until its death might take the form of insurer-friendly adjustments to the exchanges, or a restoration of the law’s risk adjustment mechanisms that were gutted by Sen. Marco Rubio and other Republicans. To kill Obamacare, it seems, Republicans first must save it.
Now it’s true, Obamacare included a number of provisions to protect participating insurers from excessive costs in the first years of the marketplaces. But the drafters included these protections in order to encourage insurer participation while the fledgling new marketplaces settled in, and while Congress made further tweaks to the law to make the marketplaces self-sustaining. The insurer protections were supposed to sunset as the marketplaces matured. But because repeal-obsessed Republicans refused to do anything to improve the law, the needed fixes never happened, and the marketplaces hung in the wind.
The newfound Republican fondness for insurer protections, on the other hand, has nothing to do with improving the efficacy of the law. Instead, it’s all about buying the GOP political cover to kill the law entirely. The GOP wants to dangle goodies in front of insurers to buy their cooperation with the Republican scheme to orchestrate an Obamacare cliff that will strong-arm Senate Democrats into going along with a yet-to-be-determined half-baked right-wing replacement plan.
It’s not clear that there is any policy concession Republicans can offer that could fully compensate insurers for the market chaos that will result from a repeal vote. Customers too may be reluctant to buy into a market that is facing imminent demise — particularly the healthiest, cheapest customers to insure. But like Carrier, there may be unspoken sticks to pressure insurers into toughing it out. Many have contracts with the government to sell Medicaid and Medicare Advantage plans. Those could potentially land in jeopardy if an insurer doesn’t play ball with the GOP’s political agenda.
It’s worth briefly coming up out of this looking glass to see how twisted this political dynamic has become. A Democratic president passed universal healthcare based on a private insurance system to win conservative support. Conservatives never came around in order to wound the Democratic president. Now in power, conservatives are poised to trash that president’s private sector-based reform and replace it with…something else. And to do that with minimal political harm, they must make a heavy-handed government intervention into the calculations of private businesses. Make sense?
Republicans used to slam President Obama for “picking winners and losers” through his emergency economic programs during the Great Recession. So in one sense, the new conservative approach to policymaking is a welcome philosophic departure from simplistic subservience to free markets — an admission that markets occasionally need government guidance to produce good results. But rest assured, this sudden conservative ideological flexibility will no doubt vanish whenever liberals next return to power.
While liberals generally prefer to intervene in markets by crafting new rules and subsidizing individuals, Trump’s Republican Party would rather grant selective carve-outs from rules and subsidize chosen companies. The Carrier deal is joyous relief for the lucky 800 families that get to keep their jobs. But for everyone else, it’s a troubling precedent for how the Trump administration will do business. Welcome to the new age of supply-side bribery.