Things to Read on the Afternoon of December 8, 2013

Must-Reads:

1. Sherry Glied and Stephanie Ma: How States Stand to Gain or Lose Federal Funds by Opting In or Out of the Medicaid Expansion: “The Supreme Court ruled to allow states to choose whether to participate in the expansion. Many of the states declining to participate have pointed to a potential negative impact on their budgets…. We compare the expected flow of Medicaid expansion-related federal funds in 2022… to payments to state governments through federal highway subsidies and payments to state businesses through defense procurement… to taxes raised by the federal government to fund the program… the state’s share of the cost of the Medicaid expansion in 2022—the match needed to draw these federal funds—to state expenditures that aim to draw private investments to states. We find that the Medicaid expansion will be a relatively large source of federal revenue… 2.35 times as great as expected federal highway funds… over one-quarter as large as expected defense procurement… No state would experience a positive flow of funds by choosing to reject the Medicaid expansion… taxpayers in non-participating states will nonetheless bear a significant share of the overall cost of the expansion… and not enjoy any of the benefits. Most states’ budget costs of expanding Medicaid each year will be, on average, less than one-sixth the amount they pay to attract private businesses…”

2. Paul Krugman: Secular Stagnation Arithmetic: “The key point is NOT to focus on events since crisis struck; this is not a case of taking a business-cycle slump and imagining that it will last forever. Instead, the argument is that the sources of demand during the good years-the Great Moderation from 1985-2007–are not going to be available even when the aftereffects of crisis have faded away…. Underneath the apparent stability of the Great Moderation… debt… rising by around 2 percent of GDP annually; that’s not going to happen in future… a reduction in demand… of around 2 percent of GDP…. Slowdown in the rate of growth of potential output, mainly… demography… perhaps… slowing productivity…. CBO thinks… 1 percentage point…. The [investment] ‘accelerator’… is somewhat above 2[:]… a 1 percentage point drop in potential growth would reduce investment spending by 2 percent of GDP…. We seem to be depressing aggregate demand by 4 percentage points…. Now, this effect can be offset to some degree by reducing interest rates. But can this be enough?… The average real rate during the GM years was 1.9 percent… hard to avoid the conclusion that the average real rate looking forward will have to be negative. If inflation stays relatively low, e.g. 2 percent, this would mean an economy that often, perhaps usually, finds itself in a liquidity trap…”

3. Ezra Klein: Should the FDA stop you from scaring yourself with 23andMe’s DNA test?: “Let’s agree that 23andMe Inc., the Google-backed company marketing a $99 genetics test that assesses your risk for more than 240 health conditions, didn’t manage its relationship with the Food and Drug Administration well…. The public humiliation of 23andMe shows how dangerous it is for any company to cross regulators. But there’s a benefit derived from upstarts such as 23andMe bristling at creaky, old rules: They force a re-examination…. The FDA, in its letter to 23andMe, cites potential harms from genetic testing; all are bank shots. After all, swabbing your saliva carries very little risk. So the FDA focuses instead on the possibility that a test will lead consumers to do something else that actually harms them…. Don Taylor, a health researcher at Duke University, delivers the obvious rebuttal…. Is preventing patients from making bad decisions the FDA’s mandate?… Investors in 23andMe should be furious that the company handled its relationship with the FDA so badly. But for the rest of us, there’s upside to seeing this spat play out in public.”

Should-Reads:

1. Dylan Matthews: The government is the only reason U.S. inequality is so high: “You can get U.S. inequality down to the levels seen in extremely egalitarian societies like Sweden by doing nothing but changing tax and transfer policies. Pre-tax/transfer inequality in the U.S…. is about equal to that of Sweden, Norway, and Denmark. Finland, Germany, and Britain actually have higher pre-tax/transfer inequality than the U.S. does. The only reason these countries enjoy such low levels of inequality is that their tax and transfer systems reduce inequality much, much more than the U.S. system does”

2. Ezra Klein and Evan Soltas: Washington has given up on growth: “The U.S. economy grew 3.6 percent in the third quarter.That’s the kind of number that could foretell a real recovery. Sadly, this one doesn’t. ‘A run-up in private inventories added a whopping 1.68 percentage points to the overall GDP number, the most since 2010, meaning that “final demand”–the actual purchases and investments in the second quarter– rose at a sub-2 percent rate, about where it has been for four years and counting’, reports Neil Irwin…. The political system, however, seems to be moving on. President Obama’s big economic speech this week was on inequality and social mobility. Paul Ryan is thinking about poverty. Both men are quick to say that growth is necessary to reduce both inequality and poverty. But weak growth is no longer the central economic problem obsessing American politics. It’s no longer treated as a crisis. No one on either side of the aisle believes new policy is politically possible. Washington has become used to these kinds of numbers and resigned to its inability to do anything about them.”

3. Jeffrey Frankel: Exorbitant Privilege: The dollar’s international status: “Except for the period 1992-2000, the dollar’s role as an international currency has been slowly declining since 1976. Since 2010, there has been another pause in this decline–somewhat surprising, given that the financial crisis began in the US, and given Congress’ recent flirtations with default. The dollar’s resilience as the world’s reserve currency is due to a lack of good alternatives–the euro has its own problems, and the yuan only accounts for 2.2% of forex transactions.”

4. Suzanne Smith: The Banking Brain:

Should Be Aware of:

1. Harold Pollack: Republicans have Medicaid’s cost problem completely wrong: “One group of Republican analysts would largely replace Medicaid with  some combination of primary care supports and catastrophic coverage. Others would… make greater use of patient cost-sharing to provide incentives for disciplined use of medical services…. The cracks in this argument become more noticeable when one shifts attention from the typical insured person to the typical insurance dollar spent for patient care, particularly when one considers the vulnerable populations overrepresented among public insurance recipients. Most people are light users of medical care…. Although I’m curious to see how healthy, affluent professionals would purchase (say) knee and hip replacements if they faced the full costs, this won’t save much money. Most people in a position to make such choices don’t consume much health care. The real money is spent on patients like my relative who is recovering from a nasty stroke. For all sorts of reasons, giving him something other than comprehensive coverage seems unwise. These distributional realities hold especially true among poor people…”

2. Suphanit Piyapromdee: The Impact of Immigration on Wages, Internal Migration and Welfare: “The local impacts of immigration… differ from national impacts…. Even within a city, workers may be affected differently depending on the substitutability of their labor with that of the new arrivals as well as their abilities to move…. I develop and estimate an equilibrium model where labor differs by skill level, gender, experience and nativity… heterogeneous in city preferences and place attachments. Cities vary in productivity levels, housing prices and local amenities. The results indicate that a 30 percent increase in the stock of immigrants has a small impact on the wages and welfare of natives. If workers are constrained to remain in their original locations, the initial wage impacts on previous immigrants are negative and much more severe in the popular destinations for new immigrants. When workers migrate in response to the immigration, the negative wage and welfare impacts in most locations are diffused. However, the negative impacts on the wages of low-skill workers in some locations intensify… because low-skill workers have stronger attachments to places…”

3. Alyssa Rosenberg: A Nelson Mandela And South Africa Reading List: “Disappointment in Successors to Nelson Mandela, a Revered Father of a Nation | Mandela And The Politics Of Forgiveness | As We Memorialize Mandela, Remember Those Who Stood With Him | The Angry Man | Be Nelson Mandela | Long Walk To Freedom, | A History Of South Africa | Country Of My Skull | Great Soul…”

Antonio Fatas: “It has been surprising to see how over the last five years some have been holding to their economic theories even if the facts kept proving them wrong (Hyperinflation? Confidence and austerity?). At the end, it seems that ideology dominates much of the macroeconomic analysis…” | Rex Nutting: Low wages are stalling America’s economy | John Aziz: The logic behind the world’s 4 weirdest strategic reserves | Daron Acemoglu and James Robinson: Value of Connections of the United States | David Dobbs: Die, selfish gene, die: The selfish gene is one of the most successful science metaphors ever invented. Unfortunately, it’s wrong | Ezra Klein: Obamacare’s real promise: if you lose your health-care plan, you can get a new one | Steve Randy Waldmann: Standards of evidence |