Economy

In Defense of Obamacare’s High Deductibles

Megan McArdle comes to the defense of the high deductibles of the exchange policies that most people are buying.

“Health-care wonks have started to see health insurance less as a way to ensure health, and more as a way to avoid financial disaster. (As one health-care economist told me … Insurance is a financial product, and what it does really well is give people financial protection.) In other words, the alternative to buying health insurance may not be ‘dying young’; it may be bankruptcy, or at least, a trashed credit report after you’ve negotiated settlements on all your medical bills.”

“It’s not Obamacare’s fault that it didn’t manage to do the impossible: provide cheap, nearly comprehensive health-care coverage without ballooning the deficit. No other reform could have done it either, without tackling provider prices — and no politically feasible reform could have tackled provider prices, because America’s 12 million health-care workers would have been marching on Washington with pitchforks, or at least running tear-jerking ads to great popular effect.”

“You can’t really blame Obamacare for the fact that the most ‘affordable’ insurance offers rather scanty coverage for the average user. Though of course, you can blame the law’s architects for overpromising. They should have been more honest, with themselves and with voters, about the limits of what they could actually do. But of course if they had been, the law probably would never have passed.”

 

Is the Economy Really on the Upswing?

New York Times: “Lawmakers, most of them Republican, have steadfastly rejected policies to stimulate the economy and Federal Reserve officials have been trying to convince everyone, including themselves, that the economy is reliably on the upswing.”

“It’s not … Growth has been lopsided, with virtually all of the income and wealth accruing to those at the top of the economic ladder. Little has been done to counter that dynamic – Obamacare is a notable exception because health coverage reduces the threat of job loss and bankruptcy from poor health. But most policymaking, or lack thereof — including big and untimely federal budget cuts coupled with the continued erosion of labor standards — has reinforced lopsided growth.”

“Rising prosperity for the few means undue hardship for the many. That is the economy’s underlying problem and it won’t be solved until policymakers face up to it.”

The GOP’s Hard-Money Orthodoxy

Paul Krugman comments on what he sees as something relatively new on the GOP policy front: “an increasingly unified Republican demand for hard-money policies, even in a depressed economy.”

“Republicans have turned their back on [Milton] Friedman, whether they know it or not, and draw their monetary doctrine from ‘Austrian’ economists like Friedrich Hayek … when they aren’t turning directly to Ayn Rand.”

“This turn wasn’t driven by experience. The new Republican monetary orthodoxy has already failed the reality test with flying colors: that ‘debased’ dollar has risen 30 percent against other major currencies since 2011, while inflation has stayed low … But years of predictive failure haven’t stopped the orthodoxy from tightening its grip on the party. What’s going on?”

“My main answer would be that the Friedman compromise — trash-talking government activism in general, but asserting that monetary policy is different — has proved politically unsustainable. You can’t, in the long run, keep telling your base that government bureaucrats are invariably incompetent, evil or both, then say that the Fed, which is, when all is said and done, basically a government agency run by bureaucrats, should be left free to print money as it sees fit.”

Poll: Part Time Workers Are No Better Off Than Unemployed

Gallup: “The financial well-being of part-time U.S. workers who are seeking full-time work is similar to the financial well-being of the unemployed, according to the Gallup-Healthways Well-Being Index. Thus far in 2015, the financial well-being score for this group, what Gallup calls involuntary part-time workers, is 46.3, compared with 44.6 for the unemployed and 60 for full-time workers who work for an employer. And while 23% of unemployed workers are thriving financially, this is true for just 18% of involuntary part-time workers.”

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“As the U.S. economy attempts to recover from the Great Recession, part-time workers who want full-time work endure as a detriment to the progress of financial well-being nationally. These adults are essentially no better off in their overall financial well-being than are the unemployed and, in fact, are less likely to be thriving in their financial well-being.”

“Since the onset of daily measurement in 2010 — the first calendar year after the official end of the Great Recession — the percentage of U.S. workers who were involuntarily working part-time jobs has only recently shown signs of decline.”

The Most Economically Unequal States Are Democratic

Philip Bump analyzes Rand Paul’s statement in Tuesday’s Republican debate that “we ought to look where income inequality seems to be the worst. It seems to be worst in cities run by Democrats, … states run by Democrats and countries currently run by Democrats.”

“Data from the Census Bureau suggests that — at least on the states — he’s correct. (Since most large cities are run by Democrats and only one country has a Democratic leader, we’ll set those aside.) Below is a chart showing each state’s Gini coefficient in 2014, from the Census Bureau.

Ineq_Gini

“The top three locations are D.C., New York and Connecticut, all undeniably blue. At the bottom, Utah, Wyoming and Alaska — all red … Beyond the fact that six of the eight most unequal states are blue, there’s actually not much of a link between Gini coefficient and how strongly Democratic the state is — or, for that matter, between the percentage of total income held by the top 1 percent in a state.”

“Paul’s point was a political one, obviously, and while factually accurate, it doesn’t tell us much about why inequality exists and … is growing.”

Do Pot and Microbreweries Explain the Future of the U.S. Economy?

Washington Post: “Breweries and dispensaries offer lessons for how policymakers might nurture a small-business comeback in the United States. But they offer very different lessons, one focused on government intervention, the other on reducing hurdles for entrepreneurs to enter a market — and their ultimate lesson could prove to be, the big guys tend to win in the end.”

Economists can’t pinpoint what’s driving a start-up slowdown, “but one theory has to do with market power. As big companies get bigger — in retail or tech or anything else — they find ways to shield themselves from competition, often by lobbying the government.”

“The beer industry is more dominated by big players than almost any other in the United States … And yet, for all that market power, the beer giants are acting scared of their smallest competitors — perhaps because there are more of them every day.”

“There are simple reasons why brewing is so friendly to start-ups: … It doesn’t cost much to learn to brew … It also doesn’t cost much to start a brewery, relatively speaking.”

“The pot industry’s approach to start-up cultivation is the opposite of the beer industry — higher barriers to entry, coupled with strict regulations. And yet, some cannabis entrepreneurs think they can copy a … secret of microbrewers’ success: artisanal differentiation.”

How Miserable Are Americans?

Matt O’Brien: “The economy is supposedly the least miserable it’s been in almost 60 years, but don’t try actually telling anyone that.”

“That’s because the so-called misery index, which adds up the inflation and unemployment rates, doesn’t really tell us that much about the state of the economy right now. There are three problems with it. The first is that it says lower inflation is always better inflation, when that isn’t necessarily the case. The second is that, even seven years after the crisis, the unemployment rate still isn’t doing a great job capturing all the people in the labor market who actually want jobs or better jobs. And the third is that you shouldn’t put equal weight on inflation and unemployment when the second one is much worse. Add it all up, and you get a metric that paints a much sunnier picture of the economy than real life.”

Source: BLS

Philosophy Majors Actually Earn More Than Welders

Matthew Yglesias: “Early in the Fox Business debate, Marco Rubio took a strong stand in favor of vocational education. ‘For the life of me I don’t know why we stigmatize vocational education,’ he said. ‘Welders make more money than philosophers. We need more welders than philosophers.'”

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“According to the Bureau of Labor Statistics, the median annual salary of a welder is just over $37,420 a year. As you can see, philosophy majors do considerably better than that. This isn’t to say there’s no strong case for vocational education. But it makes perfect sense for people who are interested in philosophy and can do the work to study it.”

Will The Fed Raise Rates in 2015?

Wall Street Journal: “Economists are taking Federal Reserve officials at their word—the first interest-rate increase will come this year.”

“About 64% of respondents to The Wall Street Journal’s monthly survey of economists now say the Fed’s Dec. 15-16 meeting will culminate with the first rate rise in nearly a decade.”

“’The Federal Reserve has all-but-telegraphed a desire to begin raising rates by year’s end, and this is likely to be at their December meeting,’ said Chad Moutray, the chief economist for the National Association of Manufacturers.”

“Despite these assurances, many investors in financial markets remain skeptical. Futures contracts in Chicago imply just a 39% probability that the central bank will raise rates this year, according to data from CME Group.”

“While most economists thought the Fed would raise rates in December, 23% said it would wait until March, the second most popular response.”

Trillions in Savings Anticipated From Projected Emissions Reductions

Inside Climate News: “Global action to reduce carbon dioxide has produced at least $60 billion in economic benefits to the U.S. in the last five years, according to a new analysis. It also concludes that current rates of  emission reductions worldwide could contribute another $2 trillion in the next 15 years.  ”

“The report was published Thursday by by the Institute for Policy Integrity, a think tank and advocacy organization at the New York University School of Law, and concluded that the U.S. will gain far more from global efforts on climate change in damages avoided to the economy, public health and the environment than proposed regulations would cost.”

“To calculate the economic benefits to the U.S., the authors first multiplied the tons of carbon dioxide emission reductions pledged by other countries and the social cost of carbon to find the economic benefits for all countries. They then estimated the United States’ share of those benefits.”

“The Obama administration has estimated the social cost of carbon at $41 per ton in 2015. That cost goes up to $79 in 2050 as the effects of adding carbon to the atmosphere become more damaging.”

Who Do Republicans Trust Most on the Economy? Trump.

Gillian White in The Atlantic: According to a recent poll from Reuters/Ipsos, 59 percent of Republicans surveyed said that they trusted Trump to manage the economy. He was the leader by a wide margin. The runner up was Ben Carson, with only 36 percent of respondents saying they’d trust the economy in his hands.

“The results … indicate that Trump’s strategy is working, at least on some level. So far, that strategy has mostly included touting his success as a businessman and negotiator as evidence of his fluency with finances. In order to ‘make America great again,’ Trump’s economic plan recommends streamlining tax brackets, from seven to four, with the top tax rate cut to 25 percent.”

“Like him or not, it seems that Trump’s appeal isn’t waning among the Republican base. The recent poll also showed Trump as tied with Carson for the candidate respondents most trusted to be commander in chief, and ahead of Carson when it came to overall support. It’s also worth noting that often a strong showing on subject-specific poll questions, like those about the economy, are closely aligned with candidates who are polling well overall.”

Does the Economy Perform Better Under Republicans or Democrats?

Paul Krugman questions whether the economy has performed better under Republicans.

“The arithmetic on partisan differences is actually stunning. Last year the economists Alan Blinder and Mark Watson circulated a paper comparing economic performance under Democratic and Republican presidents since 1947. Under Democrats, the economy grew, on average, 4.35 percent per year; under Republicans, only 2.54 percent. Over the whole period, the economy was in recession for 49 quarters; Democrats held the White House during only eight of those quarters.”

But “there’s no indication that the Democratic advantage can be explained by better monetary and fiscal policies. Democrats seem, on average, to have had better luck than Republicans on oil prices and technological progress. Overall, however, the pattern remains mysterious. Certainly no Democratic candidate would be justified in promising dramatically higher growth if elected. And in fact, Democrats never do.”

“Republicans, however, always make such claims: Every candidate with a real chance of getting the G.O.P. nomination is claiming that his tax plan would produce a huge growth surge — a claim that has no basis in historical experience. Why?”

“Republicans need to promise economic miracles as a way to sell policies that overwhelmingly favor the donor class.”

Summers: Krugman Exaggerates My Views on Secular Stagnation

Lawrence Summers responds to Paul Krugman’s assertion that Summers has converged towards his point of view on secular stagnation.

“I certainly appreciate the gravity of the secular stagnation issue more than I did a few years ago … But I think Paul exaggerates the change in my views considerably.”

“First, I believe that structural issues are often important for demand and growth. I have often asserted that ‘business confidence is the cheapest form of stimulus.'”

“Second, I have never related well to Paul’s celebrated liquidity trap analysis. It has always seemed to me be a classic example of economists’ tendency to ‘assume a can opener.’ Paul studies an economy in liquidity trap that will, by deus ex machina, be lifted out at some point in the future. He makes the point that if you assume sufficiently inflationary policy after this point, you can drive ex ante real rates down enough to stimulate the economy even before the deus ex machina moment.”

“The essence of the secular stagnation and hysteresis ideas that I have been pushing is that there is no assurance that capitalist economies, when plunged into downturn, will, over any interval, revert to what had been normal. Understanding this phenomenon and responding to it seems the central challenge for macroeconomics in this era. Any analysis that assumes restoration of previous equilibrium is, from this perspective, missing the main issue.”

The GOP’s Approach to a Tax Plan: Deny Fiscal Reality

New York Times Editorial Board: “The Republican presidential candidates were full of tax talk at this week’s debate. But none has a tax plan coherent enough to be the basis of a substantive discussion, let alone one that could meet the nation’s challenges.”

“All of the Republican plans focus on tax cuts, so losses are all but inevitable … Yet the candidates assert, against historical evidence, that revenue losses from tax cuts will be offset by economic growth.”

“All of these candidates deny fiscal reality. In the next 10 years, revenues will need to increase by 40 percent simply to keep federal spending even, per capita, with inflation and population growth. Additional revenues will be needed to pay for health care for the elderly, transportation systems and other obligations, as well as for newer challenges, including climate change. And interest on the national debt will surely rise because interest rates have nowhere to go but up.”

“In light of these needs, taxes have to go up. The reality is that income tax increases can be prudently imposed only on the wealthy at this point, because only they have had meaningful income gains in recent decades.”