There's something breathtaking about any Paul Ryan budget. There are the savage cuts to healthcare and safety-net spending for the young and poor. The deep cuts to education, research, and infrastructure. The way current seniors are spared from any of this fiscal pain. The increased defense spending. And the tax cuts -- heavily tilted towards the rich, of course -- that will supposedly be paid for by eliminating loopholes….
Ryan wants to radically simplify the tax code… radically reduce rates…. Oh, and he wants revenue to average 18.8 percent of GDP for the next decade. The only way to do all of this is to radically cut tax expenditures too. But Ryan doesn't name a single expenditure he wants to cut. Instead, he bridges the gap with a magic tax reform asterisk. This isn't a new magic trick for Ryan. It's just a bigger one… his magic asterisk needs to be even more magic…. About a trillion dollars more….
You're not alone if you think magic is more fun than math. Paul Ryan certainly agrees.
Richard Posner never managed to find the guts to apologize to Christina Romer, or Larry Summers, or his readers…
Brad DeLong : The Chicago School's Intellectual Collapse Continued: Richard Posner Is Uranus...: When I was a child, one of my favorite stories was that of the discovery of the planet Neptune on September 23, 1846 by Johann Galle, Heinrich D'Arrest, and Urbain Le Verrier. The astronomers of the nineteenth century found an anomaly in the orbit of Uranus: it was not going where Newton's law of gravitation said that it ought to be going
I wasn't going to revisit this, but I finally had enough time to think about Menzie Chinn's and Justin Wolfers's very useful attempts to strike a blow in the long twilight struggle for rational economic analysis of the stimulus package, and it struck me that here Richard Posner really is Uranus.
@madarts13 @ktguru @joenbc @kdrum I don't. I think short-run stimulus has little effect on GDP. I want long-term growth strategy instead. — Jeffrey D. Sachs (@JeffDSachs) March 9, 2013
He can think whatever he wants, but the evidence says otherwise. In a severe recession government spending multipliers are much larger than in normal times. That's why this statement is so puzzling:
…First off, here is what I mean when I say that Krugman is a crude Keynesian... There are four elements of crude Keynesianism and, indeed, of Krugman's position: (1) The belief that multipliers on tax cuts and transfers are stable, predictable and large; (2) The belief that America's employment and growth problems are overwhelmingly cyclical, not structural, and therefore remediable by short-term aggregate demand management; (3) The belief that a growing debt burden is a minor nuisance as long as the economy is in recession; (4) The belief that for practical purposes, the most urgent need is to raise aggregate demand rather than to focus on the quality and type of public spending. I believe that all of these positions are misguided.
Again, he can believe whatever he wants, but the evidence is against him.
Gone Deficit Gone: So says the CBO, although not directly…. [W]hen the economy slumps, revenues fall and some kinds of expenditure, like unemployment benefits, rise. You want to take out these “automatic stabilizers” when assessing the underlying state of the budget…. [W]e don’t have to balance the budget to have a sustainable fiscal position; all we need is to ensure that debt grows more slowly than GDP. So CBO… estimates that in fiscal 2013 these stabilizers will amount to $422 billion, accounting for just about half of a projected $845 billion deficit…. [T]here’s about $11.5 trillion in federal debt in the hands of the public…. [N]ominal GDP will in future grow by [more than] 4 percent per year, half from real growth and half from inflation. This means that the sustainable deficit is 4 percent of $11.5 trillion, or $460 billion. Hey, we’re there! And next year the adjusted deficit is projected to be much smaller
Yes, late this decade deficits will start to rise again thanks to rising health costs and an aging population, yada yada. But I have yet to hear a coherent argument about why the long-term problem of paying for the benefits we want — which will eventually have to be resolved through a combination of cost savings and revenue increases — should constrain our fiscal policy right now, in the midst of what remains a terrible economic slump. And I would say that the figure above is, in fact, a portrait of deeply irresponsible fiscal policy — because it is just crazy that in this deeply depressed economy we are now pursuing a fiscal policy that is tighter than the policy we followed at the height of the housing bubble.
So let’s try to stop doing that. And everyone repeat with me: there is no deficit problem.
World’s Wrongest Man Ventures Latest Prediction: Michael J. Boskin — former George W. Bush economic adviser, Hoover Institute fellow, and staunch advocate of conservative anti-tax doctrine — appears today, as is his wont, in The Wall Street Journal op-ed pages to warn that the Democratic president’s economic policies will lead us to misery…. Four years ago, Boskin penned a Journal op-ed whose thesis was captured in the headline, “Obama’s Radicalism Is Killing The Dow.” That was the signal for the Dow to go on a tear…. In 1993, Bill Clinton enacted an economic program centered around some public investment, coupled with deficit reduction with higher taxes on the rich. Boskin was very, very sure it would fail…. He made a series of predictions: “The new spending programs will grow more than projected, revenue growth will be disappointing, the economy will slow, and the program will reduce the deficit much less than expected.” Boskin repeated his prophecies of doom in a summerlong media blitz. Boskin labeled Clinton’s plan “clearly contractionary,” insisted the projected revenue would only raise 30 percent as much as forecast by dampening the incentive of the rich, insisted it would “take an economy that might have grown at 3 or 4 percent and cause it to grow more slowly,” and insisted anybody who believed in it would “Flunk Economics 101.” (The preceding pre-Internet quotes are all via a Lexis-Nexis search.) As it happened, literally every Boskin prediction turned out to be the opposite of reality….
Boskin decided to take his talents back to Washington. He had spotted a brilliant new economic mind in Texas governor George W. Bush. "These people were immensely impressed with him, how quick he was to pick stuff up," Boskin said. "His instincts were all very good, very much market-oriented; that created a very, very favorable impression." Boskin… did return to public punditry to insist that George W. Bush’s tax cuts would reduce revenue by far less than the official forecasts predicted….
Now, in defense of Boskin, he is probably suffering from a large dose of bad luck on top of a horrendously wrong ideology…. If you chained a thousand Boskins to a thousand keyboards for a thousand years, eventually one of them would make a correct prediction…. [I]n addition to being in thrall to a rigid and disproven ideology, Boskin suffers from unbelievably bad timing. Any investors who have actually put real money on the line after listening to him deserve the punishment they’ve received.
When Roosevelt ran for reëlection in 1936, the unemployment rate was 16.9 per cent, almost twice what it had been in 1930. Yet he won five hundred and twenty-three electoral votes, and his opponent Alf Landon, eight. When Roosevelt ran for the unprecedented third term, unemployment was 14.6 per cent. He carried thirty-eight states; Wendell Willkie carried ten.
When Menand says unemployment was 16.9 and 14.6 percent when FDR ran for reëlection, he is counting federal relief workers as unemployed. According to the economist who constructed the series Menand is using, people working for the WPA were morally the same as concentration camp workers in Germany in the 1930s. If Menand realized that, the puzzle would go away: FDR and his New Deal were popular because they gave people jobs and sparked a rapid recovery.
Nobody has any business working for these Republicans. Nobody.
Jonathan Chait:
Sessions Not Happy Being Called Wonk McCarthyite: Last week, I wrote an item that made what can only be called a highly unflattering assessment of Alabama Senator Jeff Sessions. Sessions touted a study from the General Accounting Office that, he claimed, proved that Obamacare’s fiscal assumptions were lies and that the law would increase the deficit…. [T]he report showed no such thing…. I called Sessions a “Wonk McCarthyite,” and illustrated his fallacious reasoning with a tongue-in-cheek analogy to my asking the GAO to assume that Sessions were to acquire a nuclear weapon and detonate it in Manhattan, and then touting this report as finding that Sessions was going to murder 4 million people….
I have further explored the matter at length and determined that, in my haste, I treated Senator Sessions’s claims far too generously. Senator Sessions’s combination of ignorance and gross lack of intellectual standards turns out to be even more horrifying than I managed to initially communicate. Calling Sessions a "wonk McCarthyite" implies a level of policy understanding on his part that is wholly unsupported by the facts.
I would first like to concede one point of neglect. The Republican Senate staff objects that my item failed to include a hyperlink to a post by Aaron Carroll…. I apologize for the oversight. Sessions’s office further contends that Carroll, whom it correctly if incompletely characterizes as “a pediatrician,” is not a reliable source on matters of health-care finance. I replied that I consider Carroll, who is also director of the Center for Health Policy and Professionalism Research at Indiana University, and a co-author of the respected health economics blog the Incidental Economist, a reliable source on these matters. We agreed to disagree on this point.
In my haste I… failed to adequately capture the staggering dishonesty in Sessions’s public claims…. The GAO study does not find that the tax increases in Obamacare fail to cover its spending. The study, in fact, does not measure the tax increases at all…. The report assumed… that all the higher tax in the law disappeared after 2020. You may be wondering why the report did such an incredibly odd thing…. The Government Accounting Office is a kind of in-house think-tank for Congress… members of Congress can order up reports in order to advance their chosen agenda…. Congress can set the parameters of that analysis….
GAO agreed, in response [to Sessions], to publish a study that would measure the costs of Obamacare but not its net effect on the deficit…. Sessions falsely claimed the study concluded something completely at odds with its actual findings.
In sum, I apologize to my readers, the citizens of Alabama, budget fans, and other concerned citizens for failing in my original post to adequately convey the full paucity of the intellectual standards of the junior senator from Alabama.
The latest from Rehn… Hat-tip to Ambrose of the Torygraf: Ambrose:
While the tone is changing, there is no sign yet of a retreat from fiscal belt-tightening:
Given that average debt exceeds 90pc of GDP in the EU, I don’t think there’s any room for manoeuvre to leave the path of budgetary consolidation
said EU economics chief Olli Rehn.
“We won’t solve our growth problems by piling new debt on top of our old debt,” he said. Defying his critics, Mr Rehn said John Maynard Keynes himself would not be a Keynesian today’s circumstances.
Economists believe that the market will tell you when things are expensive. It is expensive to issue government debt when nobody wants to hold it--when the expected real interest rate on government debt is high. Right now the expected deal interest rate on the government debt of credit worthy sovereigns like Japan, Britain, Germany, and the U.S. is extraordinarily low.
If you want to argue that the current interest rates on 10-year and 30-year bonds are fake--that they do not reflect marginal social values--then make that argument.
DO NOT PRETEND THAT MARKET SIGNALS ARE FLASHING "RED" ON ADDITIONAL GOVERNMENT DEBT ISSUE OVER AND ABOVE WHAT IS FORECAST IN THE BASELINE! THEY ARE NOT!!!!
This is why Obama can’t make a deal with Republicans: File this under “Jonathan Chait is right.”… [A] background briefing I attended with a respected Republican legislator who thought it would be a gamechanger for President Obama to say he’d be open to chained CPI — a policy that cuts Social Security benefits — as part of a budget deal. The only problem? Obama has said he’s open to chained CPI as part of a budget deal. And this isn’t one of those times where the admission was in private, and we’re going off of news reports. It’s right there on his Web site. It’s literally in bold type. But key GOP legislators have no idea Obama’s made that concession.
The question my column left open was whether improving the lines of communication would actually change anything. Chait’s view is no, it wouldn’t. He begins by quoting Upton Sinclair’s famous line: “It is impossible to make a man understand something if his livelihood depends on not understanding it.” Chait continues:
If Obama could get hold of Klein’s mystery legislator and inform him of his budget offer, it almost certainly wouldn’t make a difference. He would come up with something – the cuts aren’t real, or the taxes are awful, or they can’t trust Obama to carry them out, or something.
What happened next on Twitter proved Chait’s point in every particular. Mike Murphy… has been a top strategist for Mitt Romney, John McCain, Jeb Bush, Arnold Schwarzenegger and many other Republicans. He’s also, as his client list would suggest, from the party’s more pragmatic, even moderate, wing…. On Feb. 13, Murphy wrote in Time that “six magic words can unlock the door to the votes inside the Republican fortress: Some beneficiaries pay more and chained CPI, budgetary code for slightly lowering benefit increases over time.” The only problem? Obama has said all these words, as John Harwood of the New York Times quickly pointed….
Murphy responded by suggesting that sure, Obama has called for more means-testing in Medicare, but he’s not put chained CPI — CCPI, if you’re hamstrung by Twitter’s 140-character limit — on the board…. [But he] endorsed it as part of a cliff deal, and he’s kept endorsing it, as his sequestration plan clearly says, since the cliff deal fell apart. This was quickly pointed out to Murphy on Twitter, at which point, he promptly proved Chait’s thesis correct….
So let’s back up. Murphy’s initial view was that to unlock GOP votes for a budget deal, Obama just needed to endorse chained CPI and more means-testing in Medicare. Then it was pointed out that Obama has endorsed means-testing in Medicare, so Murphy wondered why he didn’t endorse chained CPI as part of a deal. Then it was pointed out that Obama did endorse chained CPI, at which point Murphy called chained CPI “a gimmick,” and said Obama had to endorse raising the Medicare age, drop his demands for more revenue as part of a deal and earn back the GOP’s trust.
Recall what Chait said would happen if the Republican legislator in my column was forced to react to the fact that Obama has endorsed chained CPI: “He would come up with something – the cuts aren’t real, or the taxes are awful, or they can’t trust Obama to carry them out, or something.” Check, check, and check.
Which is all to say that there’s no deal here….
The bottom line on American budgetary politics right now is that… there’s no deal to be had…. It’s what Hill Republicans have told me, it’s what the White House has told me, it what Hill Democrats have told me. The various camps disagree on whether Republicans are right to refuse a deal that includes further tax increases, but they all agree that that’s the key fact….
But it’s unpopular for Republicans to simply say they won’t agree to any compromise and there’s no deal to be had — particularly since taxing the wealthy is more popular than cutting entitlements, and so their position is less popular than Obama’s. That’s made it important for Republicans to prove that it’s the president who is somehow holding up a deal. This had led to a lot of Republicans fanning out to explain what the president should be offering if he was serious about making a deal. Then, when it turns out that the president did offer those items, there’s more furious hand-waving….
The interesting question is whether the possibility of a government shutdown, a debt-ceiling breach or simply the pressure of the sequester’s cuts will, in the coming months, break one side or the other. But as long as the GOP’s position is they won’t compromise, there’s not going to be a compromise.
Republicans just don't want to hand Obama anything the press will perceive as a victory. Since anything other than complete surrender to the Republicans will be scored as a victory for bipartisan deal-making Obama, whatever concessions Obama offers will not be enough.
Failing to understand the White House negotiating position is not a bug, but a feature for them.
Ezra Klein:
What we have here is a failure to communicate: [S]ome of the gridlock in Washington is simply the result of poor information. Would it matter, one reporter asked the veteran [Republican] legislator, if the president were to put chained-CPI — a policy that reconfigures the way the government measures inflation and thus slows the growth of Social Security benefits — on the table?
“Absolutely,” the legislator said. “That’s serious.”
Another reporter jumped in. “But it is on the table! They tell us three times a day that they want to do chained-CPI.”
“Who wants to do it?” said the legislator.
“The president,” replied the reporter.
“I’d love to see it,” laughed the legislator.
You can see it. If you go to WhiteHouse.gov, the first thing you’ll see is an invitation to read the president’s plan to replace the sequester. That plan is only a page. “Savings from Superlative CPI” — another way of saying chained-CPI (consumer price index) — is one of the items in bold type. It saves $130 billion over the next decade, mostly by cutting Social Security benefits. And yet there are key Republican legislators — the very Republicans who say they want to strike a deal, and who the White House will need if it’s going to get a deal — who don’t know the president is even willing to consider it.
Now, one possibility is the legislator was simply lying. But I doubt it. Politicians don’t like to make themselves look uninformed in rooms full of reporters, and such cynical messaging would be out of character for this particular member of Congress. What we have here, rather, is a failure to communicate.
Chained-CPI isn’t the only policy concession the White House has made that seems to have escaped the notice of its negotiating partners…. McConnell… calls for “serious means-testing for high-income people” on Medicare…. Graham… meant "rraising the Medicare eligibility age, means-testing entitlements, etc."… But on page 34 of the White House’s most recent budget, President Obama proposes to do exactly that. Medicare, it’s important to note, is already a partially means-tested program, with richer seniors — about 5 percent of them — paying income-related premiums for their hospital and drug insurance. Obama would increase those premiums by 15 percent, and he’d freeze the threshold such that, over the next decade or two, 25 percent of seniors were paying part of the cost of their coverage….
That’s not to say that the White House necessarily goes as far as all Republicans would like…. But what shouldn’t be holding an agreement up is that top Republicans simply don’t know the compromises the White House is willing to make on Medicare and Social Security.
Most of what I have to say is highly, highly derivative from Mike Konczal and Mark Schmitt (and others);
The problem is not just that today's crop of AEI-conservative ideas is not politically sustainable, but that it is simply wrong--Cahn and Carbone's Red Families, Blue Families has convinced me that contra Murray America's (Blue) families are actually in pretty good shape (Red families that try to keep their daughters ignorant about family planning not so much), my take on Eberstadt is coming out in Democracy Journal later this month; and
Arthur Brooks seems to me at bottom simply lamenting that Democratic policies work and make people's lives better--that Republicans are losing their campaign to try to make America a worse-off place does not strike me as a minus.
And we are live at Project Syndicate:
American Conservatism’s Crisis of Ideas: BERKELEY – On the back left corner of my desk right now are three recent books: Arthur Brooks’ The Battle, Charles Murray’s Coming Apart, and Nicholas Eberstadt’s A Nation of Takers. Together, they constitute an important intellectual movement, which also happens to be a large part of the reason that American conservatism today has little that is constructive to say about managing the economy – and little purchase on the center of the American electorate.
But let’s back up historically, to the founding of what we might call modern conservatism in early nineteenth-century Britain and France. There were some – Frédéric Bastiat and Jean-Baptiste Say come to mind – who believed that government should put the unemployed to work building infrastructure when markets or production were temporarily disrupted. But they were balanced by those like Nassau Senior, who spoke out against even famine relief: Although a million people would die in the Irish Potato Famine, “that would scarcely be enough.”
The main thrust of early conservatism was root-and-branch opposition to every form of social insurance: make the poor richer, and they would become more fertile. As a result, farm sizes would drop (as land was divided among ever more children), labor productivity would fall, and the poor would become even poorer. Social insurance was not just pointless; it was counterproductive.
The proper policy was to teach people to venerate the royal throne (so that they would respect property), the paternal hearth (so that they would not marry imprudently young), and the religious altar (so that they would fear pre-marital sex). Then, perhaps, with women chaste for half or more of their childbearing years, the surplus population would diminish and conditions for the poor would be as good as they could be.
If, as we argued, under current circumstances, fiscal expansion is self-financing, then austerity makes the debt burden worse. It looks like that is what Bernanke said yesterday…
John Cassidy:
Ben Bernanke Lectures Congress on Austerity Economics: “Given the still-moderate underlying pace of economic growth, this additional near-term burden on the recovery is significant,” Bernanke told his students, who included a number of right-wing Republican diehards, such as Senator Bob Corker, of Tennessee, and Patrick Toomey, of Pennsylvania. “Moreover, besides having adverse effects on jobs and incomes, a slower recovery would lead to less actual deficit reduction in the short run.”
I would point out that the EITC and the minimum wage have different weak points--too high a minimum wage will have a substantial disemployment effect, and too high an EITC does create incentives to pad your hours. A mixed strategy helps attenuate both these flaws.
The panelists are evenly split on whether an increase to $9 would make it “noticeably harder for low-skilled workers to find employment.”
A 4:1 majority thinks that weighing the costs and benefits, “this would be a desirable policy.”
I note how many who commented bring up the EITC, suggesting that an increase in that support might be better than a minimum-wage increase. I note further that they apparently haven’t read the very good reasoning and research suggesting that the two together very effectively address the problems of each. But Paul Krugman has. And his surprise helps explain why the others haven’t thought about this:
Second — and this is news to me — the usual notion that minimum wages and the Earned Income Tax Credit are competing ways to help low-wage workers is wrong. On the contrary, raising the minimum wage is a way to make the EITC work better, ensuring that its benefits go to workers rather than getting shared with employers. This actually is Econ 101, but done right.
I love Jonathan Chait’s phrase “the fever swamp of the center”; it really is true that self-identified centrists are sounding crazier and crazier, as they try to reconcile their fanatical devotion to the proposition that both parties are equally at fault with the distressing reality that Obama actually advocates the policies they claim to want…. [T]oday’s WaPo editorial… a new pitch. The editorial admits that Obama is calling for exactly the polices the WaPo wants… but the piece is nonetheless written as a criticism of Obama, because:
Mr. Obama has presented entitlement reform as something he would do grudgingly, as a favor to the opposition, when he should be explaining to the American people — and to his party — why it is an urgent national need.
Oh, Barack, you’re telling me what I want to hear, but you don’t sound as if you mean it!… [I]t’s all there: hyperventilating about the deficit, together with an absolute determination to blame both sides equally no matter how unbalanced they really are. And as Chait, Greg Sargent, and others say, this refusal to hold the worse parties accountable is in itself an important source of our political dysfunction.
I cannot find anybody now forecasting that the employment-to-population ratio will be higher in a year than it is today…
Binyamin Applebaum:
As Budget Cuts Loom, Austerity Kills Off Government Jobs: The federal government, the nation’s largest consumer and investor, is cutting back at a pace exceeded in the last half-century only by the military demobilizations after the Vietnam War and the cold war. The reductions are designed to be indiscriminate, cutting everything from air traffic control to nursery schools. And the turn toward austerity is set to accelerate on Friday if the mandatory federal spending cuts known as sequestration start to take effect as scheduled. Those cuts would join an earlier round of deficit reduction measures passed in 2011 and the wind-down of wars in Iraq and Afghanistan that already have reduced the federal government’s contribution to the nation’s gross domestic product by almost 7 percent in the last two years…. Federal, state and local governments now employ 500,000 fewer workers than they did on the eve of the recession in 2007, the longest and deepest decline in total government employment since the aftermath of World War II.
And it happened at exactly the wrong time to cut back on government employment--at a time when the government needed to be spending more employing more people, not fewer.
On the sequester, the American people ‘moved the goalposts’: I don’t agree with my colleague Bob Woodward, who says the Obama administration is “moving the goalposts” when they insist on a sequester replacement that includes revenues…. [I]n 2011… everyone was perfectly clear that Democrats were going to pursue tax increases in any sequester replacement, and Republicans were going to oppose tax increases in any sequester replacement. What no one knew was who would win….
The sequester was a punt. The point was to give both sides a face-saving way to raise the debt ceiling…. The hope was that… something would… change… the supercommittee…[would come] to a deal… [or] the 2012 election [would resolve things]….
[In 2012] the American people voted for the guy who wants to cut the deficit by increasing taxes…. They also voted for a Senate that would cut the deficit by increasing taxes. And then they voted for a House that would cut the deficit by increasing taxes, though due to the quirks of congressional districts, they didn’t get one….
[T]he goalposts in American politics aren’t set in backroom deals between politicians. They’re set in elections. And in the 2012 election, the American people were very clear on where they wanted the goalposts moved to.
David Brooks: In my ideal world, the Obama administration would do something Clintonesque… a budget policy… like… Robert Rubin… and if the Republicans rejected that, moderates like me would say that’s awful…
Ezra Klein: I’ve read Robert Rubin’s tax plan. He wants $1.8 trillion in new revenues. The White House… is down to $1.2 trillion…. [T]he White House’s offer seems more centrist…. People say the White House should do something centrist like Simpson-Bowles, even though their plan has less in tax hikes and less in defense cuts…
At this point David Brooks has a choice: he can say "I am an idiot who does not know what I am talking about"; or he can change the subject.
Guess what he does?
David Brooks: My first reaction is I’m not a huge fan of Simpson-Bowles anymore; I used to be. Among others, you persuaded me the tax reform scheme in theirs is not the best. Simpson-Bowles just doesn’t do enough on entitlements…
If I were running the New York Times, I would look at this and immediately say: We need to get Brooks out of our pages yesterday if not before, and we need an Ezra Klein of our own very badly.
Via Andrew Sullivan, Don Taylor notices Doug Holtz-Eakin and Avik Roy effectively saying "we've been misleading you about ObamaCare for the past four years":
Obamacare Obstruction Begins To Crack II « The Dish: Holtz-Eakin and Roy’s piece was and is primarily political, and doesn’t really have much to do with any facts or policy. They both (and many others) have overstated the case against the ACA for quite a while in my mind; that doesn’t mean I don’t read their stuff. And Holtz-Eakin was Senator McCain’s chief health policy advisor and Avik was an advisor to Gov. Romney. Given all this, the main content of the piece was reform of Obamacare v. strident ideological language arguing against something without offering an alternative that has been the norm for most opponents of the law for the past 34 months. So, even though my first thought was “Switzerland! I thought you guys hated mandates” I am personally glad to welcome them down from the ledge.
Missouri State of Mind: Self-Insurance by Small Employers Under the ACA: [S]elf-insurance in employer-sponsored health insurance is a riddle wrapped in a mystery inside an enigma… the explosive growth in self-insurance by employer sponsored health insurance plans is… under-discussed… the New York Times took it on…. explains… 59% of private sector workers with health coverage are enrolled in self-insured plans (up from 41% in 1998)… the exemption of self-insured plan from state health insurance regulation is not premised on any genuine absence from all insurance markets, the article explains about self-insured plans' participation in the stop-loss insurance market…. The stop-loss market responds by cherry picking among the new refugees on the basis of -- you guess it -- health status of the employee group, reintroducing underwriting by small group to places where it had been eliminated for individuals by the Affordable Care Act.
The moral of the story? Whereever and whenever we have competing insurance products whose profitability is determined by calculating every health care payout as a loss, the insurance markets will respond accordingly -- ever inventing more methods, even if once or twice removed, to screen those who need health insurance out of the health insurance marketplace.
Maintaining the pooling equilibrium as health care costs increase is going to be really hard. If it turns out to be impossible--well, then, the ACA system will lurch toward pay-or-play and then single-payer.
Now the harder question still remains unanswered: what will it be like to actually use the health insurance exchange to try to acquire health insurance? The conventional response seems to be that the exchanges will be modeled on Travelocity. I guess it all depends on your most recent experience with Travelocity and whether you think the kind of sophisticated value-driven computer-savvy consumers that use a site like Travelocity were the ones I am most worried about in the Exchanges.
I would add a worry: Travelocity needs to attract customers or its people will lose their jobs, the Director of Human Resources at a large company needs to have an HR website that does not get the CEO mad enough to fire them. The exchanges, by contrast, will work according to a less consumer-is-always-right more political-horse-trading logic. How will that work?
Kick the can of the sequester down the road. Short-term austerity needs to wait until after economic recovery. Short-term recovery requires pulling spending forward into the present and pushing taxes back into the future.
...we now put the odds of a sequestration at close to 50%, and rising.
Our baseline forecast, which shows GDP growth of 2.6% in 2013 and 3.3% in 2014, does not include the sequestration.
The sequestration would reduce our forecast of growth during 2013 by 0.6 percentage point (to 2.0%) but then, assuming investors expect the Federal Open Market Committee (FOMC) to delay raising the federal funds rate, boost growth by 0.1 percentage point (to 3.4%) in 2014.
By the end of 2014, the sequestration would cost roughly 700,000 jobs (including reductions in armed forces), pushing the civilian unemployment rate up ¼ percentage point, to 7.4%. The higher unemployment would linger for several years.
The macroeconomic impact of the sequestration is not catastrophic. Nevertheless, the indiscriminate fiscal restraint would come on the heels of tax increases in the first quarter that total nearly $200 billion, with the economy still struggling to overcome the legacy of the Great Recession, and when the FOMC is constrained in its ability to offset the additional fiscal drag with a more accommodative monetary policy…
I have been staring at a very gloomy graph--at the Congressional Budget Office's forecasts of "potential output", of what the economy can produce without starting to "overheat" and putting upward pressure on inflation:
Looking at this graph tells me that:
Real GDP fell relative to potential output by 8% in 2008-2009…
Real has stayed 8% below its previous growth path ever since…
The CBO is now forecasting that real GDP will return to potential output as of the end of 2017…
The CBO is now forecasting that, come the end of 2017, the economy's full-employment productive potential will be 8% below what CBO was forecasting in 2007…
The usually-intelligent Nicholas Eberstadt writes:
What is the future of conservatism?: The “clear and present danger” for the United States today is domestic… subverting… the American way of life…. [T]he collapse of the nation’s family structure…. By 2010, a child was more likely to grow up in a broken home in America than in practically any other Western society, including the Scandinavian ones…. America’s… retirement from religion…. [O]ur citizenry’s steady slide into financial dependence on the government… healthy, able-bodied, and relatively well-to-do Americans plead[ing] “poverty” for the purpose of handouts from Uncle Sam. These powerful, deeply entwined trends are progressively degrading both our people and our polity… an ignominious end to American exceptionalism….
Of all the weird things to happen over the past decade, one of the weirdest has been Clive Crook's transformation into the anti-Ezra Klein: someone who uses his knowledge of policy to cloud and confuse. More and more we find Clive Crook taking refuge in the position that:
Barack Obama's policies are by and large sensible and centrist--in many cases, a bit right of center.
The Republicans are blocking sensible and centrist policies--even those that are right of center, even Bill Clinton's tax policy, George H.W. Bush's foreign policy, John McCain's climate policy, Mitt Romney's health-care policy, and Ronald Reagan's immigration policy--because they want to make Barack Obama's presidency appear to be and be a failure.
Barack Obama has been unable to overwhelm Republican obstruction, and has had substantial but limited success in implementing policies that are by and large sensible and centrist.
It's Barack Obama's fault that the Republicans are being obstructionist. I don't like him.
This is not reality-based discourse here. The text makes no sense. What is the subtext that does?
Obama’s lonely quest for consensus: For all its flaws, the stimulus bill that Congress passed last week and President Barack Obama will sign on Tuesday is better than no bill, and better than further delay. Action is already months late, held up by the election and the protracted White House transition...
Action is already months late, but not because of the election and the White House transition. The deal of an immediate stimulus--60% spending, 40% tax cuts, all focused on bang-for-buck--was there to be made the first Wednesday in November, and was offered. The Republicans decided... to oppose it. Action is delayed, yes, but not delayed by the institutional calendar--delayed by the Republican Party.
The Ignorance Caucus: Last week Eric Cantor, the House majority leader, gave what his office told us would be a major policy speech. And we should be grateful for the heads-up about the speech’s majorness. Otherwise, a read of the speech might have suggested that he was offering nothing more than a meager, warmed-over selection of stale ideas…. [S]uch is the influence of what we might call the ignorance caucus that even when giving a speech intended to demonstrate his openness to new ideas, Mr. Cantor felt obliged to give that caucus a shout-out, calling for a complete end to federal funding of social science research. Because it’s surely a waste of money seeking to understand the society we’re trying to change.
Missouri State of Mind: Attention Wal-Mart Shoppers: Wal-Mart Shops for Value: Wal-Mart… is a brilliant illustration of our larger ambivalence over employer-sponsored health insurance…. Wal-Mart gained notoriety… in 2005 with the release of internal documents discussing the need to drive down employee health care costs… [by] hir[ing] younger presumably healthier and perhaps childless individuals…. Wal-Mart and every large employer of low-wage and low-skilled employees had and has every incentive to seek the employment turnover necessary to keep health care costs low and demand for employer-sponsored health insurance lower…. Wal-Mart's interest… in advance screening job applicants… by requiring lifting, carrying, and walking in every job description….
This is a pretty good deal for states. They’re getting most of the tab picked up by the feds.
It’s one thing to turn down high speed rail. It’s another to tell your constituents that they can’t have insurance entirely paid for by the federal government in 2014.
As more and more states take the money, those that don’t will be more easily marginalized.
History. States threatened not to join Medicaid the first time as well. All did, eventually. Now the program is so American that threatening to remove it is “coercive”.
There will be enormous pressure from doctors, hospitals,pharma, etc. who potentially will lose a lot of money in uncompensated care. They have pretty good lobbying groups.
Recently, Gov. Brewer of Arizona decided to accept the expansion, citing a number of the reasons above. Yesterday, Gov. Kasich of Ohio did the same:
Sahil Kapur: Ohio’s GOP Governor Embraces Key Part Of Obamacare: Ohio Gov. John Kasich announced Monday that he will accept the Medicaid expansion under the Affordable Care Act, becoming the fifth Republican governor to embrace the provision of the health care reform law that the Supreme Court made optional….
We are going to extend Medicaid for the working poor and for those who are jobless trying to find work. It makes great sense for the state of Ohio because it will allow us to provide greater care with our own dollars.
The four other Republican governors to back the Medicaid expansion are Brian Sandoval of Nevada, Susana Martinez of New Mexico, Jack Dalrymple of North Dakota and Jan Brewer of Arizona. About a dozen GOP governors from red states have rejected the expansion; others from mostly blue and purple states have yet to decide. Democratic governors have broadly embraced it.
It’s an enticing deal: the expansion would extend Medicaid eligibility to their residents up to roughly 133 percent of the poverty line. The federal government would cover the full cost of the new beneficiaries in the early years and 90 percent after 2020. “The net effect is 270,000 Ohioans coming into the [Medicaid] program,” said Greg Moody, the director of Ohio’s Office of Health Transformation. “Over two years the state of Ohio will have saved $235 million as a result of the decision to extend coverage.”
The Governors who are innumerate dorks are, so far: Indiana Governor Mike Pence, Michigan Governor Rick Snyder, Nebraska Governor Dave Heineman, Florida Governor Rick Scott, Oklahoma Governor Mary Fallin, South Dakota Governor Dennis Daugaard, Louisiana Governor Bobby Jindal, Texas Governor Rick Perry, Alabama Governor Robert Bentley, Georgia Governor Nathan Deal, Idaho Governor C.L. Otter, Maine Governor Paul LePage, Mississippi Governor Phil Bryant, South Carolina Governor Nikki Hale, and Wyoming Governor Matt Mead.
For a while now JMM has been on a tear trying to bump up traffic by printing "thoughtful" pieces by his readers. I've been almost uniformly unimpressed. His essay on his thoughts on the "tribe" of gun people which was a similar form of trolling cum log rolling… faux sociology and philosophy of the imaginary divide between gun owners and gun-not-owners….
The way to analyze whether, at the margin, it is raising or lowering government spending that is better for the economy right now is to do a benefit-cost analysis.
Following DeLong and Summers (2012), let the parameters for an economy at the zero lower bound of nominal interest rates and with anchored inflation expectations be:
μ, the multiplier—and a depressed-economy zero-lower-bound multiplier, not a monetary- offset multiplier;
η, the hysteresis coefficient: the shadow cast on potential output by today’s downturn;
τ, the marginal tax-and-transfer share: 1/3;
ξ, the deadweight loss from having to raise a dollar of extra tax revenue to service the debt;
r, the real government borrowing rate (and the social rate of time discount); and
g, the growth rate of potential GDP: 2.5%/year
Then for each extra dollar of government spending today the present value of total economic output now and in the future changes by:
μ(1+η(1+ξτ)/(r-g))-ξ(1-μτ)
Now:
Diamond and Saez and Romer and Romer have an estimate of the deadweight losses from having to raise taxes: ξ=0.25
Auerbach and Gorodnichenko have an estimate of the zero lower bound multiplier: μ=2.5
Oulton and Sebastiá-Barriel have an estimate of the hysteresis shadow: η=0.2
Make the short-sighted, biased, and in fact crazy assumption that Oulton and Sebastiá-Barriel are wrong--that the hysteresis shadow η is not 0.2 but zero--that no matter how deep the current downturn is there is no effect on the long-run growth of the economy’s productive potential. Then our benefit-cost expression becomes:
μ - ξ(1-μτ)
And each extra dollar of government spending now does not reduce but increases the present value of economic output now and in the future as long as:
ξη=0 < 14.925
Having to raise a dollar of extra tax revenue to amortize debt must reduce economic output by $15--not the $0.25 of Diamond and Saez or Romer and Romer or even the $3 if we were at the top of the Laffer Curve, but by $15, in order for further fiscal expansion right now to be a bad deal.
Suppose we make the additional short-sighted, biased, and in fact crazy assumption that the multiplier μ at the zero lower bound is not 2.5 but rather 1. Then our cost benefit expression becomes:
1 - ξ(1-τ)
Then each extra dollar of government spending now does not reduce but increases the present value of economic output now and in the future as long as:
ξη=0,μ=1 < 1.5
With these numbers, why are we in favor of expansionary fiscal policy only at the zero lower bound and not at all times? Because when the economy is away from the zero lower bound and when inflation expectations are potentially unanchored, the central bank is focused--for good reasons--on achieving its inflation target, which means that it acts to offset effects of changes in government spending on demand, which means that away from the zero lower bound μ=0.
And when μ=0 our cost-benefit expression is the very simple:
-ξ
There are then no special macroeconomic benefits to government spending, which should then be set at its optimal keel according to classical microeconomic principles.
And if you return from some imaginary planet in which a downturn does not cast a shadow on the growth of the economy’s productive potential, the case for more aggressive fiscal spending policy to hasten the return to full employment as long as the economy is at the zero lower bound on short-term nominal interest rates is even stronger.
Now you may not like Larry’s and my benefit-cost analysis. But, if you want to contribute constructively to the debate, I think you need to say why you do not like it and present an alternative benefit-cost analysis of your own that reaches a different conclusion.
Yes, I'm looking at you, Rudy Penner:
The Risks of Dumbing Down Fiscal Goals: In one of the more dangerous fiscal developments of recent months, some on the left are defining successful deficit reduction as merely stabilizing the federal debt [to GDP]…. While there is no magic target, this one is far too modest…. Richard Kogan… Martin Wolf… make the case…. [But] I would think the left would back more aggressive deficit reduction, if only to lower the risk of a sovereign debt crisis. It is, after all, the poor who are being most devastated by high unemployment in Ireland, Portugal, Spain and Greece…. Sovereign debt crises occur at all manner of debt-GDP ratios and are impossible to predict, but it is hard to believe that a higher ratio does not increase the risk to some degree. It is sobering to note that in 2008, just before their crises, the net debt to GDP ratio in Spain was less than 31 percent and in Ireland less than 25 percent.
Rudy Penner used to be better than this.
The Rudy Penner I used to know would say that the Irish, Portuguese, Spanish, and Greek crises were the result of their joining a currency union that was not an optimum currency area. He would say that countries in such a situation cannot afford to have even a small national debt. And he would say that the U.S. is not Greece, that claims that the U.S. is like Greece are at the least disingenuous, and that the Greek experience tells us nothing about risks for large countries that operate reserve currencies.
The Rudy Penner I used to know would, if he thought that fiscal policy needed to be more contractionary right now, present a benefit-cost analysis showing that the short-term benefits from boosting output in the near future were outweighed by the long-term risks of the effect of increasing short-term fiscal stimulus on the debt.
It’s (past) time to dismantle the RUC: If you’re an evidence-based thinker or an advocate of transparency you’ll practically be moved to tears by Brian Klepper’s account of the latest chapter in the life of a relatively obscure committee. It and our near-slavish deference to it explain much of what is wrong with the U.S. health system…. Too few know how much power the Relative Value Scale Update Committee (RUC) has and what it’s done with it. Though I’ve known about it for ages, I am guilty of rarely posting about it. Brian Klepper has been beating the drum for years. Give him and this issue a little time. His latest is on the Health Affairs blog and he blogs regularly at Care and Cost.
I would also recommend Marciarille and DeLong (2011): the ACA has already launched a missile aimed at the RUC, and it is called the IPAB--the Independent Payment Advisory Board.
On February 1st [2009], a day before Obama was scheduled to meet with congressional leaders from both parties to make his case for the stimulus, his advisers wrote him a memo recommending that he keep the stimulus package from growing:
We believe that it is critical to draw a sharp line not to exceed $900 billion, so that the size of the package does not spiral out of control.
Senators would likely amend the bill to add about forty billion dollars in personal projects—some worthy, some wasteful. At the same time, Obama hadn’t abandoned his dream of a moon-shot project. He had replaced the smart grid with a request for twenty billion dollars in funding for high-speed trains. But including that request was risky. “Critics may argue that such a proposal is not appropriate for a recovery bill because the funding we are proposing is likely to be spent over 10+ years,” the advisers wrote.
A Second G.O.P.: Can current Republicans change their underlying mentality?... It’s probably futile to try.... It’s smarter to build a new wing of the Republican Party... that is different the way the Westin is different than the Sheraton...
First, Brian Buetler answers a question from Matthew Ygleias:
"I give up on the GOP, but am not yet ready to be a Dem." RT @mattyglesias I would've liked to read today’s Brooks column in 140 characters.
Disability Rolls and the Makers/Takers/Fakers Nonsense: Jimmy Pethokoukis… went on a rant about all the fakers on the Social Security Disability rolls, prompting me to inject some facts from my CBPP colleague Kathy Ruffing….
[The] number on the DI rolls has doubled since 1995 while the working-aged population has only grown by about a fifth. Sounds bad, right? Not necessarily. What if the population was aging, with a larger share in their high-disability years, while more women were working and thus eligible for the program? In fact, about half of the increase since 1990 is due to those factors…. [T]he increase in the eligibility age for Social Security from 65 to 66 over this period has also played a role over these years, as once DI recipients hit the retirement eligibility age, they transfer onto the retirement program.
If Oklahoma Governor Expands Medicaid, Her Aunt's Free Health Clinic Won't Be So Overcrowded: Oklahoma Gov. Marry Fallin (R) has refused to accept Obamacare’s optional expansion of the Medicaid program… the direct impact of the GOP governor’s decision is evident even within her own extended family.
Fallin’s aunt, 85-year-old Dorthea Copeland, runs a free health clinic in Pottawatomie County, an area of Oklahoma that has an 18 percent poverty rate and a 28 percent uninsurance rate…. [T]he clinic is currently overloaded with low-income patients who don’t currently qualify for government assistance. As Tulsa World reports, Copeland’s volunteer staff — who served over 850 patients last year — are now struggling to keep up with the increasing demand for health services:
If you saw the recent Wall Street Journal article on the development of Smartphone apps to detect skin cancer, you may already be wondering about specialty physician over-supply…. [T]he fourth app… the one with the astonishingly accurate results that used a system that forwarded data and images to board-certified dermatologists for remote review at a cost of $5 per mole -- you could tell Christopher Weaver at the Wall Street Journal was intrigued. I am as well. Teledermatology is not particularly well developed in the United States but is fairly advanced in Australia…. [D]ermatological care for some Australians is provided, in part, remotely.
There are many other health care related apps out there but not as many as you might think…. (If you have one in mind, here's a forum for you to seek fame and fortune: http://rwjf.org/en/about-rwjf/newsroom/newsroom-content/2012/12/foundation-announces--200-000-developer-challenge.html?cid=Xtw_qualequal. No worries if you miss today's deadline, this is an ongoing series of competitions.)… [I]t is not difficult to imagine a trend line on dermatology: fewer dermatologists practicing remotely in ever larger specialized practice settings… we can already notice [this] in some parts of radiology… the specialization of the visual exam reader may also improve accuracy -- both in screening function and in elimination of expensive-in-every-way (financially, clinically, emotionally) false positives. I think of this as the paradox of learning to have clinical confidence in the doctor you never meet: the super specialized mammogram reader, for example, you hope you never meet.
We should start worrying about health-care costs now--i.e., actually staff up the IPAB, encourage private insurers to start cutting specialists' reimbursement rates, and aggressively assault scope-of-practice restrictions.
Right now we should worry that our current deficit this year and next year and even the year after is too small.
Nobody has any business supporting this branch of Republicans. Nobody at all.
Jonathan Chait:
Paul Ryan Breaks Down Under Wonkterrogation: Ezra Klein then asks what evidence [Paul Ryan] has that taking “another $600 billion or $700 billion out of tax expenditures” would harm the economy. Tax expenditures means eliminating tax deductions for specific things, rather than raising rates. Here’s Ryan’s reply:
I think rates matter. I think the statutory rate matters at the end of the day.
Note that this is not the premise of the question at all. He was asked about reducing tax deductions, leaving rates in place, and stated he wouldn’t do it because he likes low rates.
Now politicians like Paul Ryan who used to say things like:
Right now about 60 percent of the American people get more benefits in dollar value from the federal government than they pay back in taxes. So we're going to a majority of takers versus makers...
are saying, instead:
No one is suggesting that what we call our earned entitlements--entitlements you pay for, like payroll taxes for Medicare and Social Security--are putting you in a 'taker' category. No one would suggest that whatsoever."
How long will it be before the likes of Veronique de Rugy stop denouncing Social Security, Medicare, Unemployment Insurance, etc. as programs that have turned us into "a nation of takers", and stop denouncing these programs beneficiaries as "moochers"?
It is in some ways very odd. It used to be that critics of the welfare state pointed to high net marginal tax rates and argued that they had high deadweight losses. Sometimes they had a point. Then, after bipartisan reforms, we got to a point where there were few high net marginal tax rates large enough to induce large deadweight losses.
And then, in the blink of an eye, the problem became not public-finance deadweight losses but, rather, the moocher class, the nation of takers, etc.
Seneca, Selma, and Stonewall: "What many people may not realize is how recent those changes are. Gay rights may be relatively obvious — it’s just 8 years since opposition to gay marriage arguably played a significant role in Bush’s victory. But the big changes on the racial front are also more recent than widely imagined…. Republicans pine for the glory days of Ronald Reagan — but that was a different country, a county with a lot more raw racism, a country in which only a minority of Americans found interracial marriage acceptable. And yes, that had a lot to do with GOP political strength. And I don’t think the right has a clue how to operate in the better nation we’ve become.
I suspect that some 6% disapprove of interracial marriage but won't tell the Gallup interviewer because they want to save their face--that 20% of Americans today disapprove of interracial marriage. That means that 40% of Republicans disapprove of interracial marriage, and thus that perhaps 60% of Republican primary voters really do not think as the rest of us Americans do.
That poses a huge problem for the Republican Party today. And we can see that problem reflected in--among other things--the tragedy of Mitt Romney.
PrawfsBlawg: Just Open Your Mouth Wide and Say: "Dental Therapist": Pediatric dental services are included in the essential health benefits standard of the Affordable Care Act… individual and small-group plans sold in the exchanges and outside the exchanges [must] offer pediatric dental services, as of January of 2014…. And dental services already are part of the benefit package for children who are enrolled in Medicaid.
Demand for pediatric dental services is about to increase. But no one knows by how much….
"No one is suggesting that what we call our earned entitlements -- entitlements you pay for, like payroll taxes for Medicare and Social Security -- are putting you in a 'taker' category. No one would suggest that whatsoever."
--Rep. Paul Ryan (R-WI), criticizing President Obama's inaugural speech on Laura Ingraham's radio show today.
"Right now about 60 percent of the American people get more benefits in dollar value from the federal government than they pay back in taxes. So we're going to a majority of takers versus makers."
It's important to register that none of the "47%" talk makes sense--but it does seem remarkably powerful...
Last September Mike Konczal gave a good taxonomy:
Four histories of the right's 47 percent theory: The right is splitting over whether or not the 47 percent argument is worth defending…. [T]he distribution of the tax burden isn't what the 47 percent theory is about. The 47 percent theory is all about grand political battles…. [T]here are two distinct parts… first is who creates and sustains the 47 percent as a political agent… second… is that the consequences need to be terrible….
Obama's Bogus Journey: The world will little note nor long remember anything President Barack Obama said in his second inaugural…. Obama said that developing “sustainable-energy sources” is “what will lend meaning to the creed our fathers once declared.” Does anyone believe that in a week anyone will find that an arresting and compelling thought? Or credit it for being a thought at all?
And this is a person who is held up as an example of the "decent", "intellectual" right whom one can talk to…
Missouri State of Mind: Go Ask Alice: Alice… a friend… octogenarian… had fallen outside her home, broken her hip, had surgery, and was now in rehab for her Medicare-sanctioned 21 day stay… during Medicare’s open enrollment this past fall, financial exigencies had pressed her to abandon fee-for-service Medicare for a Medicare Managed Care plan. And, you guessed it, the Medicare Managed Care plan kicked in mid-treatment on January 1, 2013….
Disenrolled from fee for service Medicare – and unable to keep the surgical follow-up appointment from a surgeon who takes Medicare assignment but does not participate in Medicare Managed Care – and moved to a Medicare Managed Care rehab funded facility, Alice was advised that this was her problem to unravel. Her new Medicare Managed Care insurance plan vacillated between advising her she was not an enrollee in their plan and advising that, even were she an enrollee, no follow up post-surgical appointment was necessary….
Bear in mind that Medicare is that portion of our health care system that ranks highest in patient satisfaction data.
