Texas Jobs

Now that Rick Perry has thrown his hat into the ring his record is being rightfully dissected. One thing that has struck me is the commentary surrounding how low paying Texas jobs are. The median wage in Texas in $15.14 (28th in the nation) which would in fact be quite low in someplace like N.Y. and D.C. where the cost of living is quite expensive. In D.C. $15 an hour is what you make slogging away for some obscure non-profit and enables you to get a room in a run down group home (probably not a well maintained one at that) in a transitional neighborhood. However, in anti-zoning zealous Texas land is plentiful and land use restrictions are minimal thus you end up with cities like Houston where a single family home can be had for $130,000. I have never been to Houston so I can't speak to its vices or virtues but I would consider affordable housing a virtue. And since housing and the overall cost of living is lower in Texas the median wage gets you much further than it does somewhere like NY or LA. There are many credible lines of attack against Rick Perry--clearly he has said some things that are batshit crazy (his claim that if Bernanke and the Fed starting printing more money that that would be nearly treasonous*)-- but the low wage meme is not one.

*The treason comment and his earlier secession comment unfortunately probably reveal less about Rick Perry but rather reflect an able politician who has a good feeling for his base.

Interesting Article on Germany

David Leonhardt has a superficial but interesting piece on the Germany's relative economic success over the last couple of years. There is one sentence that I take issue with and think is a bit misleading:
"That role starts with serious regulation. American regulators stood idle as the housing bubble inflated. German banks often required a down payment of 40 percent."
First I would question the wisdom of requiring such a large down payment almost as much as enabling such low down payments as we see in the US. I don't know that society is necessarily bettered by actively discouraging home ownership. I believe governments position should be neutral but look to ensure that banks are not taking imprudent risks. At some point everyone would like to stop working and you will need shelter, not having to pay rent seems like one way to ensure an adequate retirement. In the absence of home ownership my guess is there is probably a need for higher state pensions. But that aside, it does appear that German and European regulators were very much asleep at the switch. While they did not allow German banks to lower their credit standards for German homebuyers (quite the opposite as documented above), German regulators apparently had little problem with DeutscheBank and other German banks accumulating as many bad risks on their balance sheet at considerable leverage.

What interested me also was any lack of reference to the German Kurzarbeit scheme which seems to have blunted layoffs. If you look at mass layoffs I think there are two ways to approach them (that is preventing them). The first would be to see the primary goal as propping up consumption so firms might hold off on cutting their workforce. Alternatively you can attempt to make the cost of labor cheaper. I think Kurzarbeit is very social democratic gloss on the latter. In the US the most direct and obvious way to have cut the costs of employment would have been to cut the employer portion of Social Security.

A Different Generic Republican

Tim Pawlenty just issued his major economic policy address and what is clear is that he is a moron. I guess this bit of knowledge is something oddsmakers are intimately aware of and why they believe Romney will get the nomination. After reading the text of Pawlenty's address, I agree.

2012 Prognostication

Unemployement is stuck around 9% and gas is hovering around 4$ a gallon. While I believe Obama is likely to get re-elected, so long as the economy sucks this is no sure thing and if the economy were to backslide (hello Spanish or Italian default and the resulting havoc on every Americans 401k) I could imagine just about anybody beating Obama. Ergo, if I were a Republican candidate considering running I would go ahead and do so. There is no clear favorite in the primary and whoever emerges has a good chance at victory without lifting a finger. On to my predictions: I think the Republican nominee will be Tim Pawlenty and if unemployment hits 9.5% or above by October 2012 he will be President.

Health Care Link

http://walledvillage.blogspot.com/2011/05/how-to-blow-40000-without-going-on.html

Another Good Quote

John Cogan this time:
"But regardless of how much they have contributed, the hard reality is that the federal government has already spent it. No matter how deserving they are, it is younger generations of workers who have to come up with the money."

The Conundrum

Arnold Kling wrote this post a little while ago and I wholeheartedly agree with him:
"I don't think of the long-term budget fight as being between Democrats and Republicans or between rich and poor. I look at it as a fight between people with funded retirements and unfunded retirements."

More Thoughts on SS

When policy types discuss bringing SS into balance they are really talking about 2047 and beyond when the "trust fund" is exhausted and revenues no longer match benefits. If we did nothing, then in 30 years and benefits simply matched revenues that would effectively be a cut in benefits to about 75% of their scheduled value. That said, in 30 years we should be wealthier and in the intervening decades we at least have the ability to plan accordingly. The elephant in the room is the Trust Fund. Starting this decade we will have to redeem the IOUs (or special issue bonds) in the trust fund to pay out benefits. What will this entail? Raising taxes. So really the issue with social security in my view is not the long term balance but meeting obligations over the next three decades.

Severing the Link on SS

One of the easier means of bringing social security into balance is means testing it. Such a policy would likely bring social security into balance and would do so while protecting the most vulnerable. This solution is generally favored by right of center policy types whereas left of center policy types dislike means testing as it would undermine the universal nature of Social Security and render it more like welfare. The ironic thing though is that left of center policy types also favor means testing but conducted through a different mechanisim, lifting the payroll cap. Lifting the payroll cap itself does very little to balance social security as revenues and benefits are tied. So if you pay more taxes into the system you will also get higher benefits. Some modest savings would be generated as the benefit formula is somewhat progressive (though the distributional effect of social security is probably slightly regressive when you take into account the correlation between wealth and health). However, thus the only way to actually balance social security by lifting the cap is to the sever the link between revenues and benefits. At that point you have made social security much more redistributive and undermined its universality. Sort of sounds like welfare. And in the end, there isn't anything wrong with welfare, a just and decent society provides a safety net. But let us not fool ourselves, Social Security reform is not a discussion about preserving it as a universal entitlement, it is whether means testing will be affected by higher taxes or lower benefits. Given that you can only raise so much in revenues, and we will need to raise significant amounts for medicare, it seems the sensible solution is to means test through lowering benefits for the well off.

Somebody Should be Writing a Textbook

Really, I think this would be a marked improvement.

Examining My Priors: Health Care Edition

I look at health care and I see the rand study, which appears to be backed up by this recent study, and see health care cost inflation as primarily a function of the 3rd party payment system and a lack of cost sharing. So to me, the ideal health reform would feature creating a universal risk pool and mandate people to buy a naked high deductible health plan with premium and deductible assistance for the poor. I take it as a given that if people have an incentive to economize that they will comparison shop and this will force providers throughout the system to innovate in how they deliver care. However, I think the greatest weakness in this view is that it treats health care as a normal good and presupposes people will be unabashed in getting the best value for their dollar. But people don't always approach health care as a function of healing. A lot of health care involves signaling how much you care. So it's possible in my market driven health care utopia what in fact would happen is that health care would be a proxy for loved ones to demonstrate their love and care for others by spending exorbitant amounts.

Judicial Elections and the Progressive Cause

Isn't sort of ironic that progressives are looking towards a judicial election to further their goals in Wisconsin?

Off the Grid

I love Dwell. It's one of my favorite publications and my particular fancy is when they feature some old rich dudes off the grid cabin. But the nice type, with Ikea furniture and solar panels, not like the Unabomber type. I would aspire to this lifestyle but the lack of sewer hookup really seems like an impediment.

The Ryan Plan and A Counterfactual

Mickey Kaus flirts with contrarianism but comes out on the side of common sense when he states the following about Ryan's budget plan: "I have to reluctantly conclude that it’s … a near-suicidal act that will lead Republicans off the cliff". I think the Ryan plan is a conversation starter but in many ways is unserious. I don't have issues with voucherizing medicare or block granting medicaid (though, most do) but do find it spurious that the defense budget is untouched, there are no additional revenues nor any serious discussion of tax reform (cutting rates with some hand waving about loopholes does not count as serious). So if I were the democrats I would be licking my lips for when Ryan's budget comes to a vote. This will provide a lot of campaign fodder. But what is interesting to me is a counterfactual in which instead of banking on the unpopularity of healthcare reform republicans provided bipartisan cover in exchange for making the bill a better bill. There are a lot of things Republicans could have put into play: Capping and then phasing out the Employer exclusion, making an HDHP the minimum benefit, tort reform, buying across state lines, etc. Clearly if Mitch McConnell used his leverage towards such an end the gains the republicans saw in the House and the Senate would have been diminished, though still substantial. However, this is probably a naive sentiment, having tackled health care in a constructive manner there might be sufficient residual goodwill to reform entitlements and the attendant debt burden.

While Talking About Hypocrisy

I think the republicans would be on firmer ground if they didn't campaign last cycle as the party of Medicare which they are now proposing to cut substantially.

PPACA and the Ryan Roadmap

Paul Ryan is set to unveil his plan to reform Medicaid and Medicare. I think his proposals have a snowflakes chance in hell of passage but they might get the debate headed in a positive direction. Ryan's plan basically comprises of two elements: Block granting medicaid and providing those currently under 55 with vouchers to purchase health insurance once they are eligible for Medicare. One of the criticisms that has annoyed me regarding the voucherization of Medicare has been the discussion that by setting the growth of Voucher at CPI+1 that the vouchers over time will cover less care as it will not keep pace with medical inflation. My complaint is not that this isn't necessarily a valid criticism but rather a hypocritical one. Many of the same critics have champion IPAB which is the major driver of cost savings for Medicare in PPACA. The reason they champion IPAB and the reason it would save money if the proponents of IPAB are correct, is that IPAB will be successful in reducing access to care. If that is a virtue of IPAB it cannot be a weakness of vouchers.

Health Policy Rant

One radom point that I would like to make is that I find health policy types never seem to question one of the underpinnings of the current system, namely that it is predicated on 3rd party payments, and its role in hampering innovation and cost control very frustrating. When you walk into your physicians office what should be immediately obvious to you is the substantial overhead costs involved with navigating this system. Even a simple practice will often have a billing department with several staff. This entails significant direct costs in the form of PC&B but indirect costs in the form of higher rent and the ability to see fewer patients as the doctor now also is managing a more complex operation. The conventional liberal response to that is "a-ha, single payer will make this go away". Well, not entirely, you would still have to chase reimbursements but now only from uncle sam. So you could let off some staff but you would you would still have a significant amount of overhead. There would be savings but not as much as one would think. Whereas if you simply paid when you received the service the avearge practice could probably make do with a support staff of one- a scheduler/bookkeeper. That is a small example but one that I think is accessible to most people as it is the extent of our normal interactions with the health care system and it is obviously inefficient.

Removing Qaddaffi

I oppose the war in Libya. I accept the conventional wisdom that our engagement in Libya is certainly no worse than Iraq (a war which I foolishly supported). I think the President has been much more responsible in leading our engagement in Libya than his predecessor. I just don't see much upside. Qaddaffi is unlikely to cave as he has pissed off nearly every world leader and probably doesn't have a safe haven outside of maybe Zimbabwe and Venezuela. So, if our stated goal is to remove Qaddaffi I think we will actually fail in this endeavor unless we commit ground troops. I can imagine a scenario where Libya effectively splits, or one where we maintain a no-fly zone for the better part of a decade. This is not to say that I think Qaddaffi is a good guy but I do think the zeal with which the international community is pursuing him will encourage some unintended consequences. Over the last decade Qaddaffi moderated his behavior significantly. He stopped sponsoring terrorism, it appears that he and his government provided significant insight into the financing of terrorism (after all, they had subject matter expertise), and stopped their WMD program. None these things make Qaddaffi a good citizen but they certainly demonstrate that our diplomacy was having an effect. With Qaddaffi as example in mind what should a modern day despot do? Clearly the Qaddaffi example shows that moderating your behavior will only lead to temporary gains (especially if you sitting on an ocean of oil). If I were a despot I would be musing about the counterfactual in which Qaddaffi got his nukes.

Secular Aethiest Islamists

They're all the rage these days don't you know. Here is Newt Gingrich: "I have two grandchildren: Maggie is 11; Robert is 9. I am convinced that if we do not decisively win the struggle over the nature of America, by the time they're my age they will be in a secular atheist country, potentially one dominated by radical Islamists and with no understanding of what it once meant to be an American." I thought the standard neoconservative nightmare was that we couldn't give way to secular aetheism because our secularly aetheistic society would be paralyzed in the face of the islamist threat and ultimately succumb. I didn't know that you could have a country which was simultaneously dominated by secular atheism and Islamism. I am sure Newt has some elaborate explanation of this phenomenon that he will share with us during the primaries.

Truthiness

I think this from Ezra Klein is quite true:
"4. Lots of policy problems can be solved with clever policy solutions. But Washington isn’t very good at passing or implementing clever. Simple programs and rules are often better in practice, even if they’re worse in theory."

Another Very Good Ezra Klein Interview

This time with Grover Norquist. The highlight, this line:
"I think golf and cocaine would more constructive ways to spend one’s free time time than negotiating with Democrats on spending restraint."

Credit Where Credit is Due

This is a phenomenal interview by Ezra Klein with Secretary of Agriculture (former Governor of Iowa) Tom Vilsack.
"TV: I think we would have fewer people. There’s a value system there. Service is important for rural folks. Country is important, patriotism is important. And people grow up with that. I wish I could give you all the examples over the last two years as secretary of agriculture, where I hear people in rural America constantly being criticized, without any expression of appreciation for what they do do. When’s the last time we thanked a farmer for the fact that only 6 or 7 percent of our paycheck goes to food? We talk about innovation and these guys have been extraordinarily innovative. We talk about trade deficits and agriculture has a surplus.
EK: I feel like I hear a lot of paeans to the good people of rural America. I feel like politics is thick with tributes to farmers and to the heartland -- and that’s fine with me. Which isn’t to say I doubt what you’re telling me. But I guess I’d offer a hypothesis: Some of the frustration you hear is because of the subsidies that go to rural America. If rural America wasn’t getting these subsidies but was flourishing, they’d get more of the respect you’re saying they deserve. But as long as they’re heavily subsidized, people are going to feel that there’s something wrong.
extraordinarily innovative. We talk about trade deficits and agriculture has a surplus.
TV: I don’t know if it’s that. I think one of the reasons that there’s a safety net for American farmers is that we don’t really want to be so dependent on other countries for our food. How much more do we spend on the military in order to protect our ability to get oil? I make the same argument on immigration: One reason we need immigration reform is that 50 percent to 75 percent of our food is, at some point or another, touched by immigrant hands. Growing our own food is important. That’s where I come from in my attitude that there should at least be some acknowledgment of the role that farmers and ranchers play in our country. You may be right that politicians speak up for these folks, but I have a hard time finding journalists who will speak for them."

Problems with PPACA

Matt Yglesias has a post rightly pimping pricing transpency in healthcare but unwittingly illuminates a core problem with PPACA. Yglesias shares the following reader experience:
"I think you should do some posts on the lack of transparent pricing of medical services. My girlfriend just injured her knee. Her primary care physician referred her to a sports medicine doctor who said, it doesn’t appear to be major, but I think you should get an MRI. When she makes an appointment for an MRI she learns that it may cost at least $900 out of pocket because her health insurance has a $2,500 deductible. I tried to look online to see if there were any websites that provided comparative pricing for MRI services and could find nothing. She called her insurance company and they said they were unable to provide her with pricing information for the various providers in the area. When you call the providers themselves and ask, they say Ask your insurance company. I think one way we could improve health care in the US is to require providers to post the prices of their services so that you can compare. There are at least 15 providers in the immediate area (Chicago) so it is not for a lack of competition that prices are out of whack, it a result of opaque pricing that leaves the consumer of medical services powerless."
Yglesisas goes on to make the point the PPACA has provisions which are supposed to improve transparency in pricing. I agree that this is a good thing. It is fundamental to cost control. However, you also need to have the incentive to economize, not just the information that enables you to do so. In the shared scenario the person seemingly has a high deductible health plan and has an incentive to comparison shop because she actually has to pay for the care herself. She presently lacks the information to comparison shop but has the incentive to do so. PPACA will invert this problem by effectively getting rid of HDHPs so while people will have the information to comparison shop they will no longer have the incentive to do so.

Ezra Klein on State Pensions

He states: "it's hard to argue that defined benefit plans should be done away with for states, though it's not hard to argue that they should be funded honestly and based on realistic projections for eventual returns."

It's actually not hard to argue that defined benefit plans should be done away with; the second clause in the excerpted statement tacitly makes the argument. As politicians are irresponsible as evidenced by chronic underfunding of pension funds (and improving benefits in the future that they have no intention of funding) a better retirement policy would be to shift towards defined contribution plans where politicians cannot kick the can down the road. Not difficult. I think Ezra puts in a lot of good reasons why defined benefit plans are good, but the political economy considerations remain the same. If the media were more vigilant about accurately reporting on deficits (you have not posted a surplus of $x if you have skipped a pension payment of $x or $x+1) then I would probably be more amenable to defined benefit pensions because when they are run properly and when they are funded adequately they are a superior solution. But I think the incentive will always be for politicians to promise more benefits in the out years and skip funding in the present creating problems for future taxpayers and retirees alike.

Update: Andrew Samwick and Megan McArdle have great posts on defined benefit plans and retirement savings more generally. One of the the things both discuss in their posts is how people get screwed when they switch employers in a defined benefit context. I think this is an underappreciated aspect of pensions. Once upon a time it was more likely for folks to stay with a single employer for their whole career, that is less and less the case.

Difficult Datapoint for Progressives

http://www.marginalrevolution.com/marginalrevolution/2011/03/canadian-data-on-income-stagnation.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+marginalrevolution%2FhCQh+%28Marginal+Revolution%29

A Breath of Fresh Air

Here is Chris Christie on why he doesn't think he should run for president:
"The issue is not me sitting here and saying, 'Geez, it might be too hard. I don’t think I can win.' I see the opportunity both at the primary level and at the general election level. I see the opportunity. But I’ve got to believe I’m ready to be president, and I don’t. And I think that that’s the basis you have to make that decision."
That type of self awareness and humility is not something that you find too often among politicians.

Update: I agree with his self-assessment on his electoral chances. I do believe that he would be the favorite in the Republican primary and if the economy continues to be weak just about anyone will have a fighting chance against Obama.

Wyden-Brown Amendment

Donald Taylor discusses the import of the Wyden-Brown amendment and the types of waiver requests that are likely to be granted (opening exchanges to everybody or a single payer). One of the limiting factors in the Wyden-Brown amendment is that the operates within the context of ACA which defines the minimum benefit at a fairly comprehensive level. I think to promote health we should be spending less money on health insurance and directing more money towards things like mass transit, pre-natal nutrion, and health school lunches. I would be interested to see if the Secretary of HHS would allow for a waiver with resources diverted away from health insurance subsidies towards broader wellness incentives.

Increasing Blog Traffic: Matthew Yglesias Edition

Apparently criticizing Matthew Yglesias posts is a great way of driving traffic to your site. However, it does appear there is an inverse relationship between the Matthew Yglesias blog (excellent) and the commenters it has driven my way. Nonetheless, thanks for the traffic.

A Test for Obamacare

One bellwether for PPACA will be whether Mitch Daniels request of HHS to extend the Healthy Indiana Plan to Medicare eligible patients is approved. If approved this will indicate the administration's willingness to enable states to experiment with different health care approaches.

Question for Progressives

Why is it that with health care, the presumption is that we need an intermediary for routine predictable transactions? Or even non-routine care but that isn't necessarily of the urgent life threatening variety (an MRI, a colonoscopy, etc.)? Why is that a more efficient process than giving people either cash or something akin to an in-kind benefit along the lines of food stamps where people would have a debit card that has restricted purchasing abilities*?

If you insist that there is an intermediary to each transaction, then there will be a considerable amount of overhead costs to facilitate transactions that in other industries don't exist. On its face this is an inefficient set up. Why should someone that practices family medicine need anything more than one staff member who functions effectively as his bookkeeper and scheduler. That additional overhead gets passed on to you in the form of premiums to pay for more staff at the providers office to chase reimbursements and more staff at the insurer to process claims. But additionally, the only possible avenue for cost control is top down as opposed to a bottom up manner that we find in most industries. If I am spending my money directly then I have an incentive to minimize my expenses. For instance, if I have to get a colonoscopy, something that does constitute a significant and expensive procedure, but not urgent, I can research prices and reputation and make a more informed decision. If we make price information available I think initially we will find a wild variance in pricing but that will come down, resulting in significant savings to the average consumer. None of this I think is terribly controversial but it seems that we view health care in such a manner that all rules that apply to other goods and services don't to health care.

* I think the non-paternalistic alternative to providing lower income folks with free or massively subsidized insurance is to just give them cash. The obvious criticism here is that lower income folks having many needs and wants and very little cash will forgo care for other things both wise or unwise. I think there is a middle ground to providing cash and a strictly in kind benefit and that would be something along the lines of a medical debit or credit card that has strict restrictions on purchasing. To a doctor this would be as good as cash but to a grocer it would be worthless thus it would seem to address the fear with someone forgoing necessary care but still retain the efficiency of reducing the parties to a routine transaction.

Matt Yglesias Makes a Stupid Point

He postulates a scenario where a pill is invented that enables us to live till our 100th birthday without any illness and then suddenly die. In such a world there would be no health care sector and thus those incomes go away and his view would cause "a catastrophic economic collapse". I guess I think of it differently, I would have $15k of discretionary income that I don't currently have and that money I could spend on my child's education and development, my wife and my leisure, or towards investments. I think there is a mindset that looks at technology as displacing labor, which it often does, and draws the conclusion that it is bad. Such would be the case if human wants were finite, but they are in fact infinite.

No Defense Cuts

It amazes me (and heartens me) that Republicans are proposing $15 billion in Defense cuts. I find it ironic if not suprising that President Obama is citing the proposed cuts as one of the reasons he is threatening to wield his veto pen.

I think there is a good argument to be had that now is not the optimal time to start budget cuts. And I don't think budget cuts where the discretionary non-defense to defense ration is 85-15 is appropriate either. I would be content with a smaller cut this year where the non-defense to defense ration was 25-25 for a total of $50 billion and scaled up to $100 billion the following year and the year after that the ratio would change to 50-100 with a total cut of $150 billion. The reason I think you want to start with modest cuts now is that you don't know that the economy will start roaring back due to deficit spending. So while revenues will probably continue to rise the deficit is likely to be a problem for a while and the longer we fail to address it the more likely it is that we will be present with harsher choices when we are forced to deal with it.

When Will RIM Go Out of Business

I have a blackberry through work and I have an android based phone. Even before I got my blackberry from work I never seriously considered using it as my personal phone (at the time I had a dumbphone). Even without ever fiddling around with an iPhone or Android phone the blackberry's limitations were pretty pronounced. My work throttles the use of it so this may not be entirely fair (the camera is disabled and the app store is disabled- no sexting on the work phone). The functionality that I do have is crap. The browser sucks. The UI is really clunky. I like physical keys but I have actually been surprised how the touchscreen keyboard is surprisingly tolerable (and if physical keys are a must you can get android based phones with them, though not an iPhone). My intuition is that RIM has business side pretty much locked down but is probably losing individual and family subscriptions at a steady clip (and to the extent they are maintaing those subscriptions they are probably subsidizing the phones at near cost or even a loss to keep a place in the market). At some point I would imagine that either Apple or Google will at least make a foray into getting some of the corporate or government market. When that happens I don't see how RIM survives.

Public Lockin Effects Creat Bad Policy Outcomes

One such example that always annoys me is the consequence of the following views that are widely shared by voters: 1. Roads should be free; 2. Transit should be able to pay for itself. The end result is a ridiculous amounts of congestion and everyone is worse off because we fail to price roads and invest in transit.

In Health Care we see something similar. The employer exclusion is the original sin in healthcare. Most of my coworkers can tell you how frequently they can get prescription glasses for "free", if their plan reimburses a gym membership or not, if the copay on a doctor's visit is low. They won't be able to tell you what the coinsurance is in the event they have a major medical event. Even a low coinsurance rate, say 20% can add up quickly if you have an extended hospital stay. They can't tell you how much they are foregoing in wages as a result of the employer contribution to their health care plan, because of course, don't you know, the employer pays it. One of the policy constraints politicians operated under was this lockin effect of people's expectations of continuing this form of first dollar coverage with somebody else's money. The problem with first dollar coverage is it is expensive and paying for it with somebody else's money is ultimately gonna cost you in wages. But alas, that is where we have ended up in health care reform, building on and further reinforcing a broken model.

Microsoft Musing

I caught this courtesy of Brad DeLong:
"Every quarter Microsoft reports earnings, and every quarter it reports a massive loss in its online operations. Today it reported a $543 million loss for its December quarter. This gives Microsoft a trailing-four-quarter loss of $2.5 billion. That's simply astounding. We've asked it before, and we'll ask it again: Has any company lost as much money online as Microsoft?"
This blows my mind. I am sure this is more than just Bing and Internet Explorer but both suck tremendously. Ironically Bing is the default search engine of my Android phone (courtesy of Verizon apparently getting boatloads of money from Microsoft to make it so).

Less Care or Greater Productivity?

There is a fundamental assumption in health care reform that "bending the cost curve" is synonymous with reducing care*. For example see this very thoughtful post from Donald Taylor**. I think this assumption leads most health care experts to focus on empowering some omniscient bureaucrat (whether employed by the federal government or by an insurer) to wisely decide how to maximize the returns on our health care dollar by only spending on high bang for the buck procedures. This view precludes the notion that productivity gains could drive down costs. In health care the conventional wisdom holds that technology only drives prices up (it may also enhance quality but at a significant premium). I wonder how much of this is driven by the fundamentals of health care financing as opposed to actual delivery? The areas of health care where insurance is not the normal means of financing care such as plastic surgery or dental care have shown significantly lower cost growth than the rest of health care. Or if you look at something like Lasik eye surgery there has been both an increase of quality, utilization accompanied with price decreases. Obviously insurance should play an important role in health care but the important question is what role? Should we be subsidized to purchase a product that adds parties to a routine and predictable transaction? No. We should focus on ensuring that when something that unexpectedly causes one to incur great expenses that he does not end up in the poor house.

*I do believe that part of bending the cost curve will be better utilization of care and this will necessarily entail some reduction in the care provided. But I can't help but wonder if how health care delivery is financed holds back some potential productivity enhancing measures.

**If you are interested in health care policy Donald Taylor's blog is a must read. He has considerable expertise in health care policy but also has a keen read on the politics of health care. He has a very provocative compromise proposal that I will blog in a bit but you should definitely read now.

The Great Stagnation

Tyler Cowen has a kindle single (a small e-book) out called "The Great Stagnation". I haven't read it but hope to soon and will report on it once I do. That said, it appears one of the basic premises is that innovation has stalled or declined. It's an interesting premise because I think it is a very debatable premise. I look at my life at almost thirty and if I were to bisect my life into two 15 year terms the second term appears to me to be the one where a lot more amazing things have happened.

I recently purchased a smartphone (I don't know how I ever lived without it). 15 years ago I had a cd player. If I wanted to carry my music collection then I needed to transport a book of cds. I had a desktop that had dial up and internet was glacial compared to what it is now. I had just started emailing and surfing the web but the notion of doing that while riding the metro or waiting for my coffe was unimaginable to me. I didn't have a navigation tool other than a map book (I was either unaware of mapquest or it didn't exist yet). My go to basic reference guide was encyclopedia brittanica. Video chats was not something I was aware of then (I am guessing it existed but was probably exorbitantly expensive and probably unreliable). Voice recognition, I doubt it. If I wanted a book for leisure reading I needed to bring that with me (a choice of books, had to of course bring those too). Amazon existed so I could buy stuff readily. Cell phones were rare and to the extent they existed were massive and expensive. Now, I have this little thing that is 3"x6" has a beautiful display (AMOLED) and barely weighs anything and can carry more music than I could have, has as much data at my fingertips than I could have dreamt of, access to thousands of books, phenomenal connectivity and speed, and a million other things for a pittance. The functionality that this little device I would have, or more accurately, begged my parents to spend thousands of dollars for. My guess is that such a device if it had existed then would have cost over $10,000. Now it can be had for maybe $500 without signing up for a plan and as low $0 with a cell plan. The marginal cost over what my parents paid for dial-up and long distance is negative. I am sure that my cell and data plan today costs less than their landline and dial up did back then. That is amazing to me. To me that sounds like a lot of innovation.

Jim Webb Just Won His Re-Election Bid

George Allen, R-Macaca, has announced his intention to run for his old senate seat.

Nevermind, Repeal HCR

Ezra Klein has a post begging us to remember the story of Deamonte Driver when we think of the plight of the uninsured. For those unfamiliar with Deamonte's tragic story, Deamonte was a 12 year old who passed away several years ago as an abcess in his tooth which then spread to his brain, multiple operations and $250,000 later Deamonte died from what could have been solved by a routine tooth extraction. The only problem with Ezra's plea is that Deamonte was covered under medicaid and area dentists that accept medicaid are few and far between. Medicaid is crap and health care reform is expanding it. What we should be doing enabling people to buy catastrophic coverage to protect them from a medical bankruptcy, and providing cash support to cover the deductible for those who are lower income. What if Deamonte's mother could have walked into a dentist's office and said that she was prepared to pay the $100 for a tooth extraction there on the spot, the dentist wouldn't have to wait six months to get reimbursed by medicaid? My guess is that Deamonte would be alive. Ezra Klein has been a tireless advocate for the uninsured and has brought a lot of light to the health care debate, but this is a post that he will forever regret as it is beyond stupid.

I don't think we should actually repeal HCR, but if we are creating insurance exchanges and then also subsidizing the purchase of insurance, why have medicaid? Or at least why not reform medicaid away from this centrally planned price setting model to one that is cash based. Give people a health debit card. Something along the lines of Marty Feldstein's proposal.

Update: I just reread Ezra's post and it still totally blows my mind. He owes his readers an apology. This is the type of error that gets right wingers nominated for stupidest person alive by Brad DeLong.

Reform, Don't Repeal

Republicans are hot and heavy for repeal and this may be a political winner but it will have no impact on actual policy. Any repeal will not make it to the president's desk and if it did the president would surely veto such a measure. I think Republicans would be much better off spending their time and energy on making the health care reform bill better. If I were Speaker Boenher and Minority Leader McConnell my priorities would be the following:
1. Change the minimum benefit plan to allow for Real Insurance- presently the minimum benefit plan is quite generous and thus will be quite expensive. This will put many uninsured that are of modest means in a bind. Make the minimum qualified plan a naked HDHP with some low level of coinsurance after the deductible. First dollar coverage increases utilization and by extension causes medical price inflation.
2. Tax All Health Insurance Equally and Limit the Tax Subsidy- the Health Care Reform bill aims to do this beginning in 2018 on high cost plans ($27,500). This measure is too far out and too modest. Ideally the employer exclusion should be removed entirely and health insurance provided by an employer should be taxed as income. Alternatively, the value of the exclusion could be capped at the median health plan cost and not indexed while enabling those who buy healthcare on the individual market to purchase insurance with pre-tax dollars.
3. Get Employers Out of the Health Insurance Business- by taxing health insurance there will be less of an incentive for employers to provide insurance, but once they dump their coverage, where do their employees go? Presently the state based insurance exchanges will not be available to employees of large firms or firms that offer health coverage. Make the exchanges available to everyone. Now!
4. Get rid of CLASS- it is an unfunded entitlement that was used to game the CBO scoring process.
5. Pass the Brown-Wyden Waiver rule into law- Senators Scott Brown and Ron Wyden proposed that states could opt out of health care reform and use their medicaid dollars so long as they provided similarly comprehensive care. I think if a HDHP plan becomes qualifying care then this would be a sensible option.

An Impassioned Defense of Libraries

My analysis of Pied's defense of libraries elicited a very inciteful comment from a reader, Carla (I have readers, who knew?), who as a librarian provides a very thoughtful defense of libraries and in her view their continued relevance. Here is an excerpt from her comment:
"Libraries have community spaces for business meetings, potlucks and book clubs. A children's storytime hour can captivate a child's imagination and get them hooked on books for a lifetime. Libraries are places where artists can exhibit their work. They provide instruction on how to use a mouse, getting started with email, understanding the web, ESL, photoshop and other software, how to write a resume and look for a job, homework help and tutoring for kids and adults in English, math, GED, citizenship test prep, tax prep... I could go on and on. Libraries level the playing field for their users. The rich and poor alike have the exact same access to information and services. Where else does an organization or institution offer equal access to everything?"
One of the interesting things here is that Carla, correct me if I am wrong, seems to be putting a great deal of emphasis on the libraries function as a community center but also as having a role in fostering social equality. The other thing that is interesting to me is the extent to which Carla portrays the public library as this entrepenurial organization that has keyed its efforts in large part on assisting the underserved. These are two points that I really hadn't considered. Anyhow, please do read her comment in full.

Libraries Revisited

I was reading this post by Matthew Yglesias, where he makes the case that libraries are something of an anachronism, which reminded me of a post in defense of the modern library by PeP's very own founding blogger- Piedpiper. Pied's defense of libraries was written not quite five years ago. I would be interested to see if he believes if his defense of libraries has weathered this brief test of time. Pied laid out three arguments in favor of the library in modern times:

Well Pied's first argument in favor of the library is confusing so I will cite the whole bit (notice something here? Yes my readers, a hyperlink, that is like a citation that is even better than a citation. You click on it and it takes you to the source):
"First, the Web is great at providing information. But that information is neither here nor there without the ability to cite your source (!), prove its authenticity, or delve deeper into the subject. The problem with the Web is that since there is so much information, we can't delineate (in many circumstances) fact from fiction."
I think there seem to be two related thoughts here: 1a. appears to be the difficulty of citations (which in the middle aughts actually was a greater concern as citing conventions for online sources where less common than they are today and certainly less accepted). 1b seems to be a concern with the ability to discern whether the source is an authority or not. Apparently Pied gained much more faith in a source if it was on the printed page than pixels on a screen. I guess I don't understand how this is really an issue and I don't think I would have thought it was at the time either. I would say his first concern, that of citations has cured itself. His second concern, that of authenticity was misplaced.

Pied's second argument in favor of libraries centered around the concern with the cost of connectivity. The argument goes that the web is a poor substitute for a library because you need connectivity and a computer a router and so on in order to use the web. Pied argued that one of the areas where a library demonstrated its relevance was by providing the poor with access to the web. I think this still holds up, though, I would guess that at this point the barriers to web access as far as cost goes has substantially diminished in the last five years thus attenuating the libararies usefulness in this function.

Pied's third argument is I believe the most potent, which is that the Library functions as a community center. I guess, here too I wonder how valid this is? A library may be a place where people can have meetings but typically there are in fact things called community centers for that. Libraries typically are characterized by stern old ladies shushing you which really inhibits that whole interaction bit that is the predicate to functioning as a community center. Then again, I don't read books, I burn books, so maybe I am not a good arbiter of this discussion. Pied, what says you?

I think the basic function of a library, sharing books, is still a good one, even as e-readers proliferate but not as necessary as it once was. To me that augurs for the scaling back of public libraries but not outright elimination of them.

Conservative Stupidity on Mandates

The individual mandate is an idea that was popularized by conservatives during the Clinton administration when the Clinton administration initial reform proposal included extensive employer mandates (which I think was and is bad policy). I don't really mind the mandate per se. I suppose it is somewhat odd that the federal government can require you to purchase a private product, this does seem like a new step (what about an iPod, broccoli, treadmill, how about a specific service- colonics anyone?). That said, it is only an incremental step from subsidizing homeowners or employees of certain firms and so on through the tax code. I suppose this explains my indifference.

In the end, there needs to be some pooling mechanism to prevent adverse selection. I do not view adverse selection as THE central health care problem but it certainly is a problem and could become a bigger problem. Thus, I think the mandate or some substitute is necessary. Maybe you could be required to post a bond in the absence of a mandate. In Germany if you opt out of health insurance you cannot immediately purchase health insurance in the event of a medical crisis, but rather must wait for a predetermined enrollment period (Paul Starr of the American Prospect made a proposal along these lines where the re-enrollment for an opt-out would be restricted to the January of a leap year, that seems pretty significant). To the extent that a subsidy is available for healthcare, such as a refundable credit, its availibility could be conditioned on the purchase of qualifying healthcare. Another alternative would be a federal re-insurance program along the lines of what John Kerry proposed during his 2004 presidential campaign (this type of policy is one that some republicans have embraced, though, they have focused on replicating this policy at the state level). Conservatives are advocating for private insurance and to keep government out of health care. A risk pooling mechanism is a predicate to a functioning insurance market. If the republicans should refrain from gloating unless they propose an alternative risk pooling mechanism.

hat tip: Avik Roy of the Agenda

Christmas and Other Predictions Revisited and Other Consumerist Musings

Back in the glory days of 2007 I predicted that a Blu Ray or an HD-DVD player would be an awful present as the format war had not yet been resolved (so your chance of getting the right format was only 50/50) but I also predicted the winning format would be obsolete soon thereafter as people would increasingly download their content. Frankly, I think I was right on that. Increasingly people are forgoing DVDs or Bluray or any physical media at all and are opting to stream their media (whether for pay or not, legally or not is a different matter). And netflix has been leading the charge.

In that same blogpost I rescinded a previous prediction that SmartCars would be a failure. I think I was too hasty to withdraw. SmartCars had an initial spark of enthusiasm but have since struggled for relevance as everyone has concluded that they suck.

The other thing that has been vexing me is the differing sizes of the tablets out there. The iPad is the standard at 10 inches basically resembling a netbook in size. The Samsung Galaxy Tab is 7 inches and the Dell Streak is only 5 inches. The Dell Streak to me could actually be more of a really large smart phone. The Droid X is 4.3 inches and I wouldn't characterize it as unwieldy. It's funny, the trend was to have the sleekest smallest form factor possible. But since the iPhone the trend has been to get as much screen space as your pocket will fit. But I digress. To me, the iPad is neither fish nor fowl. It is too large to be truly portable or much more so than a netbook. It doesn't really replace my normal computing needs as I do fiddle a lot with spreadsheets and like to run things at the same time. The one thing about the Galaxy tab is that it is a little more portable (maybe it can fit into your coat pocket but not your pant pockets). It could probably replace your GPS without obstructing your view like an iPad, though your smartphone could do the same. I don't quite get the tablet thing though I know a lot of people that have and love their iPads (I can't say the same for the Samsung Galaxy tab or any other android tab). I don't know where I come out on this. I have heard the tablets described as platforms for new applications that aren't really available today but that these newer form factors will facilitate (book-textbook size with touchscreen). I can imagine them in a health care or educational context of being very useful. In college you could see a math textbook slowly evolving into an interactive module that will interrupt you mid formula as you are going down the wrong path in a problem.

Bipartisan Health Care

With the individual mandate possibly in doubt (depending on Anthony Kennedy's mood at the moment) some are speculating that PPACA will need to be heavily modified. Unfortunately, I don't think that the health care bill will be significantly changed anytime soon. I think Republicans would rather have a bad and unpopular policy to campaign against in 2012 than actually do something to fix it. This is foolish because while I do think PPACA is bad policy it is not beyond repair. Additionally, irrrespective of whether or not it is improved upon, I don't think it will be unpopular for long (people love spending other people's money). Anyhow, in the event that Republicans decided that they would actually like to make some good policy, Donald Taylor has proposed something that they might find somewhat congenial. The meat of his policy would be:

1. for medicare to offer catastrophic coverage to every individual and family (Taylor says caps of $10k and $15k respectively, I wonder if he is referring to deductibles)

2. to offer premium support (who qualifies is undefined) for insurance to cover the gap

3. Employer tax exclusion would be eliminated to fund the above.

The first sticking point I see is I doubt republicans would be keen on having medicare for everyone even if it were a catastrophic program. I could live with this. The second sticking point that I envision is the relatively high deductible before medicare kicks in. I don't actually have a problem with it, this would limit the government's exposure in the outyears significantly, however, it sort of shocks the eyes when you see it. There is something of a lock-in effect that makes even a deductible as low as $2500 shocking to people. People have been conditioned to think of first dollar coverage as being free as it is provided by their employer (even though it as at the expense of wages).

Mr. Taylor suggests premium support for "gap insurance". I am of two minds on this. If you go back to the Rand study it appears that people actually manage to be competent health care consumers, with the exception of lower income folks (specifically those with chronic conditions). They are more likely to forgo care if they don't have first dollar coverage (even if their income is supplemented to offset the difference). In the Rand experiment, my understanding is that people were randomly assigned to different health plans but they were provided with side payments to equalize their economic circumstances. So for instance, let's say I had a gold plated plan that normally cost $10k with no copay and no coninsurance and no deductible and was assigned to a plan that cost $2.5k and had a $5k deductible. In the Rand study I would have been provided the cash to cover the deductible and possibly more. The central finding was that people spent considerably less the more coinsurance was involved while having a negligible impact on health outcomes. As I said, the real caveat was for poor folks with chronic conditions such as hypertension. This would indicate that providing first dollar coverage to the very poor would ultimately benefit health outcomes and should be considered preferable to a simple cash benefit. My question is would first dollar coverage also be preferable to something along a health savings account or MediSave (a la Signapore) where unlike cash your only option is to spend the money on health care? If the answer is yes, then so be it. If the answer is no then I think the some sort of either tax incentivized savings regimen (like an HSA) or more preferably a MediSave account (forced savings accounts used in Signapore) would be more preferable as a straight cash transaction involves less overhead and forces the consumer to to be price conscious and evaluate the tradeoffs involved in a given treatment.

Los Angeles Vikings

It would be sort of funny if the Vikes followed the Lakers out to LA.

Tyler Cowen on Income Inequality

In a nutshell his view could be distilled into the following: doesn't matter except for those bastard bankers. I basically agree with this take. It's a good and quick read, enjoy.

Xtra's Pronouncement on the Tax Deal

I think it is crap and stupid. The payroll tax cut is good. I don't know which side it would be better to cut (here is Matt Yglesias in favor of cutting the employee side and Bryan Caplan and Greg Mankiw in favor of cutting the employer side). I don't view boosting aggregate demand as the most important thing in the world but rather cutting the cost of labor so as to reduce unemployment. I think instead of the crap stimulus bill that we got with $100 billion for highways and the stupid Make Work Pay tax credit we should have focused all the tax cuts on the employer portion of the payroll tax cut and sought higher value infrastucture investments but that day has passed. The Obama administration botched that stimulus and they seem intent on botching the tax deal. Some suggest that Obama adminstration had no leverage. I disagree, the default, i.e. current law, would have resulted in the expiration of the Bush tax cuts which the right desperately wanted to presever. If I had been President Obama, at a minimum, I would have sought a downpayment on deficit/debt reduction in the outyears (maybe an increase in the gas tax or a federal booze tax, whatever) in exchange for any extension of the tax cuts. I think the alternative view is that the Obama administration wanted to get as much stimulus as possible and this was the deal that got them that. That may be the case but it is still weak sauce in my view.

What Should Health Insurance Be

Ezra Klein provides a good definition (though I actually doubt that he agrees with this definition):
"... that helps protect you from a health-care crisis is,.."

I think if Health Care Reform mandated such a product, essentially catastrophic coverage, then there would be much less apprehension and uproar about the mandate. Here is my lament from almost a year ago about then proposed high minimum benefits and the problem a mandate creates:

"Thought 1: I have probably said this previously but I think the biggest peril in health reform lies in the convergence of two areas- the minimum benefit and an individual mandate. If the minimum benefit is generous (i.e. covers all the first dollar stuff like physician visits and eyeglasses) than it will be fairly expensive. This will be problematic as even with subsidies (currently proposed for folks with an income up to 3X-4X the poverty level) a lot of the middle class that do not get their insurance from an employer will find themselves still unable to afford healthcare (maybe less so than before) and will now face the prospect of a penalty for not having complied with the mandate. Sounds fantastic.

"Thought 2 (closely related to thought 1 for those keeping score): The emphasis on coverage thus far has been on the first dollar variety (e.g. low deductible, low copayment, low coinsurance). This emphasis is misplaced. Going to the doctor for your annual physical, semi-annual dental checkup, and some antibiotics are the typical interactions for most people with the medical system. This can be done and should be done out of pocket. These are predictable events not suited for insurance and add to the overall cost growth of health insurance in creating administrative waste. What is important though is that you are covered when something unfortunate does happen, such as getting hit by a bus, a sudden stroke, etc. This is what insurance is typically for, low frequency events with high payouts. It is this type of event, a catastrophic event that causes medical bankruptcies for the uninsured. It would thus seem logical that a mandate would involve such a plan-catastrophic coverage-as opposed to something that makes sure you can get a pair of designer glasses and prescription sun glasses without having to reach into your wallet."

The mandate was necessary to make these high minimum benefit plans remotely affordable. I have never been confident that the mandate would actually make the plans affordable (the high minimum benefits make that goal unattainable), but it was the only hope. The legal current legal challenges pose a direct threat to the foundation of health care reform.

Part of the current dilemma could have been mitigated if congress had approached health insurance in a more traditional sense (catastrophic coverage). Mandating a product that costs a family a couple hundred dollars a month without a subsidy is an easier pill to swallow than one that costs north of a thousand a month to purchase without a subsidy. There would still be some opportunistic state AGs willing to file suits but their suits would find fewer sympathizers (on and off the bench). Instead, health care reform has written such coverage out of law. There is in fact something called catastrophic coverage envisioned in the new health care law but it has so many minimum benefits that it would be more accurately characterized as a PPO with a higher deductible.

Bowles-Simpson Commission

I think the commission has actually been fruitful as they have facilitated a national conversation on the deficit and I think have framed a very important issue: tax expenditures. The one area where I think the commission failed was on the revenue side. Their focus on getting rid of tax expenditures and lowering rates was quite good but I would have liked to see some other revenue options thrown into the mix like a securities transaction tax and a carbon tax.

QE2, the Euro, and Currency Devaluation

A couple of good paragraphs from Arnold Kling:
"Yesterday in my high school econ class, I found myself trying to explain why having a separate currency that could depreciate would enable the PIIGS to live happily ever after. I made the textbook argument, but I found myself not so convinced. OK, so maybe you can tell a story where one country that has a recession and a large fiscal deficit would be better off with devaluation. But there are so many countries in that position right now, and they cannot all devalue.
Speaking of "cannot all devalue," doesn't the impact of the PIIGS crisis completely nullify QE2? If the dollar appreciates 10 percent and the foreign sector is 10 percent of the economy, then that represents 1 percent disinflation, which probably more than wipes out any inflationary impact of the Fed's new bond buying program."

Fannie, Freddie, the FHA

The big question is whether we need them. Fannie and Freddie have cost the taxpayer an absurd amount. Yes, I know, they were innocent victims of all other banks malfeasance (that's why they required the biggest bailout? "hmm" he says with a furrowed brow). What is the reason for Fannie, Freddie, and the FHA? Ostensibly they make home ownership more affordable by providing lower mortgage rates. However, if you have a lower mortgage rate then by extension you can afford a larger mortgage thus pushing up home prices in the aggregate and wiping out any savings.

So what is the point of the big three Government Mortgage Giants (I am throwing FHA in here because they are originating most of the loans in the market and my guess is they will be costing the taxpayer an obscene amount shortly). Affordability they don't provide. I think the answer is to provide liquidity in the mortgage market and facilitate a cheap 30 year fixed rate mortgage. I have a 30 year fixed rate mortgage and certainly would prefer one all things being equal. However, all things are not equal. In order to provide me with a 30 year fixed rate mortgage the taxpayer and banks ends up taking the interest rate risk as opposed to the homeowner. If in fact a 30 year fixed rate mortgage is so desirable it stands to reason that banks would offer a 30 year mortgage without a guarentee from the feds. Such a mortgage, one without a guarentee would probably be priced significantly higher then current mortgages, but again, if people are so averse to interest rate risk then they should be willing to pay a higher rate. Alternatively, more people would be inclined to do 5 year ARMS like they do in Canada and continually roll over the debt until the principal is paid down. This would expose the homeowner to interest rate risk that they currently do not face but would also likely encourage homeowners to paydown their principal more rapidly. Some homeowners would find that they couldn't roll over their debt and would lose their homes. The flipside though is that "some homeowners" are less likely to extract massive bailouts from the government than Goldman Sachs and Citigroup when they are unable to roll over their debt. My two cents.

I love WikiLeaks Cablegate

Thanks to WikiLeaks, foreign affairs are no longer the private business of the ruling class, but open for all to see.

Bush Tax Cuts

If I were the Democrats I would say that I had no problem extending the Bush tax cuts for high earners provided they were paid for. This would put the onus on Republicans to find spending to cut or other taxes to raise to maintain current rates. My two cents. If I were a Republican I would respond that an appropriate pay-for would a phase out of the state and local tax deduction.

Carbon Tax, not a VAT

I agree with Matt Yglesias that if there is gonna be a consumption tax it should be a carbon tax not a VAT. I think part of the reason that some are still enamored with a VAT is that it can raise a ton of money, probably more than a carbon tax. That said, a carbon tax should generate substantial revenues and also would more efficiently curb carbon emissions while not sacrificing any ground on efficiency to the VAT.

Ezra Klein's Guide to Philanthropy

Basically, he thinks of himself as a charity case. Personally, I like to do a mix of scientific research less popular diseases (that sounds weird but some diseases can be devastating but somehow aren't as marketable), international development, social services, cultural outlets, and conservation. But to each his own.

More on The Trust Fund

This was a comment that was left on Matthew Yglesias' blog that does a much better job of articulating the problematic nature of the trust fund:
"My point is the value of the trust fund is the value of future congresses to honor the current promises to pay future retirees and the value of future congresses and presidents to transfer money to social security when it is needed.Holders of public debt would probably not flinch or be concerned at all if the trust fund was never paid back. It has no implications for the u.s's ability to borrow from third parties."

Yglesias Pens Uncharacteristically Daft Post

Matthew Yglesias is apparently hot and bothered about the characterization of the SS Trust Fund as lacking assets. His take on the Social Security Trust Fund is incredible. Here is the key part:
"The Social Security trust fund is a very real fund that really contains assets—bonds—that represent lending from Social Security to the rest of the government (ROTG). "

"The only issue with the Social Security Trust Fund is that if you assume ROTG will repay its debts, that means ROTG will need to obtain that many through tax hikes or spending cuts. Conversely, if ROTG avoids tax hikes or spending cuts, that will require additional hikes or cuts from Social Security."

So, to paraphrase, the only issue with the SS Trust Fund is if you assume that the Trust Fund is real then you will be sorely suprised when your taxes go up/non-SS spending is cut/SS benefits are cut to compensate for the fact that the Trust Fund is not real. Great, thanks for clearing that one up. I think this is a post he wishes he could have back.

Millionaire Tax Bracket

The rich are different. Among other things they are very good at sheltering income. Ezra Klein's suggestion of making a millionaire's tax bracket seems foolish as over time it won't get that much income as: 1. there are not a ton of millionaire's though with time there will be more; 2. Most millionaire's get their money in the form of capital gains which are taxed at a lower rate. If you want the super rich to pay a greater share of taxes then capital gains should be taxed as ordinary income.

Wyden-Brown Proposal

I basically agree with Reihan Salam's take on the Wyden-Brown's proposal. I think it would be great to enable states to experiment on health reform by giving them a waiver and letting them implement their own reform but the waiver process is essentially worthless if there is a requirement that the insurance that is offered is as comprehensive as envisioned in the health care bill. Reihan's objection is one I share more broadly with the entire health reform effort which is in order for a state to qualify for a waiver the state must ensure that the insurance is as comprehensive as the health care bill offers. I think that is the central failing in the health care bill which is that in maintains a system of comprehensive health care coverage when we should in fact be shifting away to a system of catastrophic coverage. What if for instance, a state said that it wanted to take the the funds and implement universal catastrophic coverage for everybody and health savings accounts for medicaid eligible population and spend any savings on things that would constitute wellness or public health improvements. This could be as varied as increasing budgets for healthier school lunches, better and more extensive public transportation, promoting walkable communities, expanding community clinics or just return the savings to the people in the form of lower taxes.

Reporters Should Not Be Allowed to Report Unless They Know the Difference Between the General Fund and the Unified Budget

This article makes the basic observation that raising the retirement age hurts the poor. This is a fair observation. Raising the retirement age is probably the most regressive means of putting SS into balance. It is probably also one of the most efficient (keeps people in the workforce longer + lower taxes). Anyhow, I don't think the Bowles-Simpson Commission's proposal of raising the retirerment age a whole 2 years over the next 65 years is all that draconian, but whatever. What really gets my goat about the article is this part:
"On its current path, Social Security is projected to run out of money by 2037, largely because of aging baby boomers reaching retirement. The longer action is delayed, the harder it will get to shore up the program."

Stephen Ohlemacher is probably blissfully unaware of his error. But he has mislead the public and this is typical of how the media treats discussions about social security, budget deficits, and our nation's finances more genearlly. In their ignorance the media has abbetted what would amount to accounting fraud in the private sector. Many will think I am crazy and will say, "but wait a minute, the author is right, there is the trust fund, we have prefunded Social Security to cover the gap between Revenues and Outlays that starts in 2018. That will take us till 2037." Here is the problem with that, every year, the federal government spends more than it takes in (except for a few years during the Clinton Administration).

Presently and since 1984 during the last go around of Social Security Reform, Social Security revenues have exceeded Social Security expenditures. What happens is that the government uses the surplus revenues to plug the gaps in its budget and then issues the Social Security Administration special issue bonds that bear interest (read: IOUs) for the money it borrows. This is where the general fund and the unified fund distinction comes into play. The General Fund does not look at Social Security outlays (but typically does count some of its revenues- to my mind the decoupling of revenues and expenditures in a pension fund is cooking the books). But to the extent it uses the surplus revenues it counts those as revenues. For example, just using some made up numbers, let's say in the current year for the US government to prefund social security it needs to collect $200 billion more than it spends in social security benefits. Now imagine that there is a general fund deficit of $200 billion. The government takes those $200 billion dollars and plugs it into the general fund. Instead of issuing debt to cover the general fund the government now has to issue debt to cover future expenditures to future social security recipients. Let's say that the size of the economy is $10 trillion dollars. Thus, in this scenario, the government by shfiting excess social security revenues away from prefunding the trust fund and into the general fund has not actually changed the fiscal picture. But what our moronic press corp would do is say that the government has balanced the budget deficit as there is no general fund deficit. However, there is a deficit, it has been shfited off the books, that is the unified deficit, and it is in my view the important number. In this scenario since the Social Security trust fund has been shortchanged by $200 billion (in a $10 trillion hypothetical economy) the unified budget defict would be 2% of GDP. The government is doing this even today**.

As I mentioned in the previous paragraph, when the government takes those excess social security revenues, it issues debt not assets to social security. Some say that Social Security trust fund possesses actual T-Bills. It doesn't though. Well, first, you can verify whether this is the case (click on this link), and it is not. Second, it wouldn't actually make a difference. A T-Bill is a form of debt that the government issues. You get a T-Bill in exchange for giving the government money. That T-Bill is backed by the taxpayer and at some point if you want to redeem it the government will have to raise revenues to pay you. So if the SSA were to in fact posess T-Bills it would be the functional equivalent of having an IOU as one part of the government would be issuing debt to another part of the government. The end result would be the same. The taxpayer would be asked to cover the debt.

Going back to the title of this post and how it relates to the earlier quote, my objection is the characterization of Social Security as being solvent until 2037 is essentially false. An accurate statement would be: 1. Social Security is solvent so long as social security revenues are equal to or greater than Social Security expenditures; 2. Social Security will continue to be solvent after social security revenues are less than social security expenditures if the taxpayer is willing to fund the difference. The second clause may or may not be true. So here would be my proposed revision:

"On its current path, Social Security is projected to run out of money by 2018, largely because of aging baby boomers reaching retirement and generations of fiscal mismanagement and creative accounting. We are past the point of no return, future benefits will be cut at the margins next decade and wholesale in the decades thereafter."

The health of social security is contingent on the ability to redeem the bonds in the Trust Fund. The ability to redeem the bonds in the trust fund is tied to the health of government's finances more generally. If publicly held debt were low, issuing new debt to fund social security wouldn't be an issue. However, the Government's finances are piss poor and deteroriating and we are just beginning to work our way through the baby boom. The media in pretending that there is some imaginary pot of gold out there that is gonna cover the next two decades of Social Security expenditures. They have been unwitting accessories in cooking the government's books.

* I am not entirely sure if this is accurate for 2009-10 as the social security revenues are depressed as a function of the recession.

Military Brain Drain

Matthew Yglesias has a great post on one of the overlooked consequences of military spending. While the military does foster a lot of innovation and development through its spending it also raises the price of engineers and sucks away a lot of talent from more productive endeavors than killing feriners.

PeP Phraseology Smackdown

The New Oxford American Dictionary has crowned Refudiate as the word of the year. This is a really stupid one. Refudiate does not capture a new concept (see unfriend) or is not a novel twist or combination of words (see chillax).

More on the Bowles-Simpson Plan

Glenn Hubbard has a good rundown on the commission's chairs' report.

Tax Hikes Republicans Should Put Forward

If Republicans are serious about deficit reduction they will have to get serious not only about spending cuts but also raising revenues, and that means raising taxes. Now, some see the Republicans stated desire to maintain current income tax rates as being in competition with deficit reduction, this is not necessarily true. One can raise taxes without raising rates by broadening the taxable base (which has been significantly narrowed by a myriad of deductions, exclusions, and credits). Additionally one can tax different activities other work to raise revenues. If I were the Republicans I would propose that for every dollar of revenue raised the revenues be split evenly between deficit reduction and rate reduction. To raise revenues Republicans should propose the following:
Base Broadening Tax Modifications
1. Cap the Employer Exlusion today and set it at the average plan on the FEHB and index the cap to inflation (extend the tax treatment to those who buy their own healthcare, this will offset some of the revenues but will also be a good thing for small businesses and entrepeneurs.)
2. Cap the Mortgage Interest Deduction (currently you can deduct interest on a mortgage up to $1 million dollars, even for a home equity loan or a second home. Cap the deduction at $500,000 of interest and make home equity loans or second homes no longer applicable for the deduction). Don't index the cap.
3. Get rid of the State and Local Tax Deduction
4. Simplify all of the different tax advantaged savings programs- create one pre-tax savings vehicle and one after tax savings vehicle that everyone is eligible for- My suggestion would be a universal 401-k and a Roth IRA

Ancillary Revenues (New or Higher Existing Taxes)
1. Sin Taxes- the alcohol tax alone can raise significant revenues. On the flip side you would have fewer murders, rapes, and drunken driving deaths and injuries. Win/win.
2. Tobin Tax- Setting a modest financial transaction tax could raise a significant amount of revenue (up to $100 billion annually) while at the margins reducing market volatility
3. Gas Tax- Convert the gas tax from a fixed amount per gallon to an ad valorem basis. As the price of gas goes up so to will revenues (unless consumption of gas all of a suddent decreases much faster than the price of gas increases)
4. Carbon Tax- This is not happening but again, I think this is an area where Republicans could reorient the party in a sensible direction that is both economically efficient, distrubitionally neutral, and environmentally conscious. The tax could be very modest to begin with, though, consistently increasing over the years and plow the revenues to offset payroll taxes.
5. Bank Tax- Tax bank size. I don't know how much revenue this would raise, in an ideal world revenues would be close to nil as banks would be smaller and pose less of a systemic risk.
6. User Fees: Many agencies are funded in part or whole through user fees. These practices should be expanded.

In Case You Were Wondering...

what your municipal government's regulations regarding urban chicken coops was here is a handy link: http://home.centurytel.net/thecitychicken/chickenlaws.html

Can You Cut the Federal Workforce and Contractors?

Stan Collender says that if we cut the federal workforce and contractors that support them then some work is gonna have to be left undone. Mr. Collender has made this point a couple of times before. I think Stan Collender typically has very interesting and informative things to say about public policy but this is daft. I work in the government and on my floor alone you could send 25% of the people home (contractor and fed alike) without any loss in productivity. I am in my 20s and every where I turn I bump into somebody who is a GS-14 or GS-15 who has no real responsibility and is constantly figuring out ways to make themselves scarce. You don't lose anything by canning someone that isn't doing anything. And as it is virtually impossible to fire someone in the federal government (in my five years in the government the only thing someone that is not SES has been fired for is watching Porn). In theory contractors are supposed to serve as a workaround for managers but it usually doesn't work out that way. If you are an ineffective manager and you decide to augment your staff through contract because your employees are shirking what often happens is the contractors start to act like the feds. And because you have not disciplined your employees, because you are averse to confrontation or whatever the case may be, you don't ride your contractors. As such, you find lots of scenarios where we are spending $200k for someone to GS-7 Admin Assistant or Program Assistant type work just so we have the option of canning them but fail to exercise this option (a dear one) when appropriate. This is why you need to fire both feds and contractors. If you want to achieve greater productivity in the federal workforce there are two things that I believe are necessary:
1. More accountability, less job security (sometimes people should be fired, it is shameful how much deadweight taxpayers are asked to bear)
2. Higher Salaries at the Senior Management Level. I believe government is a good place to start salary wise but as you move up the career ladder it tops out too quickly. As a GS-15 or SES you can have a tremendous amount of responsibility yet your salary (starting $125k) isn't really competitive. Once you get to that level the traditional benefits of public sector work (a less hectic schedule/or more family friendly schedule) disappear but are not mitigated by a competitive salary. The only saving grace is that you don't have to do the sales work and proposals that you would have to do with a consulting firm. But you will end up on the hill, at trade associations, getting screamed at by stakeholders, etc.

Revenues As A Percentage of GDP

Historically revenues as a percentage of GDP have averaged around 18%. Obama's deficit commission is proposing to elevate the federal government's take to 21%. Liberals are howling that this is to low. That is a pretty significant tax hike, I don't see how you can dismiss such a proposal as unserious as it pertains to the revenue side. If anything it's ambitious.

Washington D.C.

I grew up in D.C., one of those rare natives you hear about. I actually think we as a folk, the natives that is, are a nice group of people. The problem with D.C. is that States expunge the greedy, selfish, narcissistic, and power crazed and they all come and settle here. To get a good feeling of this dynamic and the resulting culture you must read the comments on this article. Mind you, Sidwell Friends is probably the premier private school in D.C. and costs as much as a private college does.

hat tip: Marginal Revolution

Don't Repeal Obamacare, Reform It

Republicans are not going to succeed in repealing Obamacare without control of the Senate and Obama still there to veto any such repeal. As such, I don't think they should bother. While I belive Obamacare is an abomination in its present form it can and should be improved and there are ways of doing so that provide opportunities for bipartisan cooperation.

1. Funding: Both parties are giving lipservice to the deficit. However, Republicans have stated that they do not want to raise marginal rates. On its face this appears hypocritical but it needn't be. One way to raise a significant amount of revenue would be to cap the employer exemption on healthcare and align the cap with the cost of a High Deductible Health Plan (HDHP) plan. This would have a significant and immediate impact on cost control thus reducing spending in the out years while raising more than letting the only the upper tax bracket of the Bush Tax Cuts (as the White House has proposed) expire would. This would also accelerate the transition away from an employer provided system.

2. Minimum Benefits: The current health care bill's principal failure is that it defines the minimum benefit in at a very high level. As such, most routine predictable care is paid by an insurer. Adding a party to a transaction is inefficient but also promotes overconsumption as prices are not immediately evident to the consumer. By capping the employer exemption more people would opt for HDHPs where routine non-catastrophic care comes out of pocket but Obamacare has effectively outlawed such plans by defining a high minimum benefit level. Reducing the minimum benefit level to a naked HDHP will also make the individual mandate more effective as the penalty (while staying the same) would be more significant in relationship to the much lower premiums of HDHP plan. This would ameliorate the potential adverse selection spiral that Obamacare presently appears destined for.

3. Exchanges: Accelerate implementation of the exchanges, allow individuals to buy into them as opposed to employers. Let individuals buy across state lines tomorrow. These three steps together would get employers out of the health care game. If employers are no longer providing health care this should make employees at the bottom end of the wage scale significantly cheaper and help with the unemployment picture.

These three elements would preserve the basic architecture of Obamacare, maintain the coverage expansions all while reducing the present and future cost of implementation.

It Costs Two Cents to Make a Penny

Which to me indicates that it is no longer a useful medium of exchange. Be done with the penny.

Scary Quotes

"3. Social Security won't much change, keeping in mind that the number of elderly voters is growing larger every day. Given all their elderly white voters, the Republicans are already "the party of Medicare." The Democrats have become "the party of Medicaid." That locks three major programs into place, more or less. I don't hear serious talk of major cuts in defense spending."~Tyler Cowen, Marginal Revolution

Cross Country Train

"Why don't more of us take the train, and why doesn't Washington invest in the rails across the country to give more of the country, and not just the northeast corridor, the pleasure of the Acela, with speeds up to 150 mph between Boston and Washington?" -Peter King, SI

This is a really stupid question. Why would you want travel across the country on speeds of up to 150 mph on a train when you can do so on speeds up to 500 mph in a plane? Trains are a very enjoyable and efficient means of travel for trips under 250 miles (and probably 500 miles for the forseeable future depending on the price of gas).

Trompe L'Oeil Speedbump

TTAC calls this the 'creepiest application of the “trompe-l’œil speedbump”'. I have to agree. I wonder if this is really more effective than a physical speed bump or will it just cause a couple of older folks to have a cardiac arrest when they are under the false impression that they just ran over some girl chasing after a pink ball in a parking garage?

Unfortunate Names: DC School Edition

One of the rumored short listers to replace Michelle Rhee (assuming that Mayor-Elect Gray cans her) is a fellow by the name of Robert Bobb, or to be less formal, Bob Bobb. While Bobb-Squared's parents must have had contempt for their child, they did create an impressive fellow. Here's his wiki.

PeP Phraseology

The word chillax is a hybrid of chill and relax. Some would say this type of word is superflous but I would argue its adoption in the urban lexicon is what makes the English language rich. Thus my shock and horror when I looked up the proper definition on dictionary.com to find it did not have an entry.

Rosy Scenario's Secret Identity

I have discovered Rosy Scenario's secret identity. Her true name is Brad DeLong. Go read the whole post. Brad's logic is that right now it is obscenely cheap to borrow money and thus the potential long term budgetary costs are negligible (especially when you consider the potentially high social costs of structural long term unemployment). Brad looks at the borrowing as a one time cost and seems to assume no difficulties rolling over the debt. That is more what worries me.

That said, I largely agree that we should have taken advantage of the low borrowing rates and cheap labor available during a recession and that the first stimulus could have and should have been crafted better (50% of it was wasted on poorly constructed tax cuts). I would like to see such borrowing paired with future tax increases and spending cuts as early as 2 years out.

If the Bush administration had done any work whatsoever on planning for high speed rail, upgrading our grid, or implementing more mass transit (hell, just fixing what ought to have been fixed such as bridges) we would be in a much better situation right now. A lot of those unemployed construction workers could have been employed in a beneficial manner (at a discount). The taxpayer would reap the benefit of an upgraded infrastructure (with extremely low financing costs, likely lower if paired with a credible deficit reduction plan).

Al, We Hardly Knew Ya

If the smoking gun is to be believed, Al Gore likes handjobs from strangers. I don't see that as a problem. That said, I wonder what Sen. Gore's voting record was on these types of activities? I think if Al Gore had introduced legislation once upon a time called the Massage Parlor Freedom Act or the Happy Ending Act that that might have softened some of the rough edges of his public image. Personally, I am always much more comfortable with a Democrat whose views of limiting government intervention extend beyond abortion and sexual orientation.

BP and Unemployment

I do like the following idea from Robert Reich: "The President should order BP to establish a $5 billion clean-up fund, and immediately put America’s army of unemployed young people to work saving the Gulf coast. Call it the new Civilian Conservation Corps."

PeP Endorsement

I am endorsing Blogger cum Senate candidate Mickey Kaus (D-CA) to be California's next Senator. Given my previously established influence over the interwebs, I firmly believe that this endorsement will have an earth shattering impact (Kaus thinks that he will get about 3% of the vote, my endorsement should probably swing another 1%).

My rationale for endorsing Mickey Kaus is principally self-serving (somebody needs to set the precedent of a blogger becoming a big time politician so that it's not perceived as crazy when I jump straight to the white house without holding major office) but there are also more substantive reasons. One, I think it is important for someone who will not be immediately perceived as a bigot (thus, not a republican) to advance a sensible enforcement first-legalization later immigration policy. Aside from being better policy I think this would have a salutary impact on the immigration debate. Two, Kaus while liberal, would promote heterodoxy in general. Once other politicians saw how reporters had a lip lock on his ass for going against the grain on major issues other politicians and candidates will have an incentive at the margin to act out of envy and see personal gain in telling their leadership to go to hell. Again, I think this too would have a beneficial impact on policy debates and ultimately on policy outcomes. So with that said, I endorse Mickey Kaus for Senator.

Sensible Celebrity Quote

Normally I cringe when actors and such offer their politcal opinions as they're policy advice tends be daft. That said, this, from James Cameron, is very sensible:
'"The government really needs to have its own independent ability to go down there and image the site, survey the site and do its own investigation," he said.
"Because if you're not monitoring it independently, you're asking the perpetrator to give you the video of the crime scene," Cameron added.'

My Influence is Boundless

My call for a BP boycott is mushrooming. I am one of the most important people on the internet. See this article, it may not mention me by name, but it is really all about me. I get results.