Month: April 2014

Richard Mayhew: ObamaCare and Medical Loss Ratios: “The Medical Loss Ratio (MLR) is…

the sum of money spent on claims by an insurance company plus the sum of money spent on a few quality improvement and medical management programs divided by the sum of money collected as premiums.  Under Obamacare… small groups and individual policies as a pool have to have an MLR of at least 80%…. This is a consumer protection piece.  Junk insurance and more importantly half-decent benefit packages that are overpriced is no longer practical to sell…. Most of the integrated payer-providers, co-ops and larger non-profits tended to be close to regulated MLR levels in 2012. The big difference has been moving the for-profits pay-out rates much higher. It is changing the business model from looking for reasons post-facto to deny claims towards better medical management and efficiency as there is no longer an ability for a company to spend 30% of revenues on bureaucrats looking to say no…. Mayhew Insurance can move some of the specious No’s to quality improvement and medical management roles, but the plan to have a gold-plated fountain in the lobby has been reconsidered…

Must-Reads:

1. David G. Blanchflower and Adam S. Posen: Wages and Labor Market Slack: Making the Dual Mandate Operational: “We undertake the first econometric analysis of the impact of rises in inactivity (1-LFPR) on wages in the US economy. To the degree that the rise in unemployment in the US is structural… wages should increase because of the negative shock to labor supply…. In contrast, if the rise in inactivity is largely cyclical, labor markets will see downward pressure on wages…. We find… inactives exert additional downward pressure on wages over and above the unemployment rate itself…. This pattern holds across recent decades in the US data, and the relationship strengthens in recent years when variation in participation increases. Our analysis is based on observations by state and year…. The implication… is two-fold. First, low participation is indeed an additional measure of labor market slack…. A substantial portion of those American workers who became inactive should… be expected to spring back into the labor market if demand rises to create jobs…. Second, wage inflation should be considered as the primary target of FOMC policy with respect to the employment stabilization side of the Fed’s dual mandate, at least for now…”

2. Even Soltas: Yes, the Pay Gap Persists: “Mark Perry and Andrew Biggs… at the American Enterprise Institute argued… that no pay gap exists between men and women after you control for the different choices they make…. I took issue…. I found a persistent pay gap on the order of 4 to 10%…. And I also wrote that it’s probably wrong to take all these [controls] as unaffected by pressure or discrimination. Perry responded… that the pay gap might persist because of gender differences in risk tolerance…. [and] because professional athletes and musicians are paid well and tend to be men. Sadly, his argument makes no sense…. 1. My regression has ‘fixed effects’ for occupation. This means that it fully accounts for any occupation-level compensating differentials for risk. So everything Perry and Biggs write about men dying in forestry, or what have you–yeah, my analysis accounts for that. That’s what a fixed effect is. 2. My analysis is of workers paid hourly wages. Professional athletes and musicians are not hourly workers…. Look, I understand why Perry and Biggs have to respond…. They misrepresented the research consensus on the gender pay gap in a major newspaper, and I called them out on it…. The 23-percent number reflects more than discrimination. But if they are going to try to explain away the pay gap, they’re going to need to try a bit harder than this…”

3. Ryan Avent: Inequality: “Capital” and its discontents: “Piketty’s magnum opus is certainly not without its weaknesses, but the quality of the criticism it has attracted provides a sense of the strength of the argument he makes. Consider Clive Crook…. He writes: ‘There’s a persistent tension between the limits of the data he presents and the grandiosity of the conclusions he draws.’ The line doubles as a pleasingly apt description of Mr Crook’s review. He is unhappy…. Why… doesn’t Mr Piketty say that r must be significantly above g to generate the expected divergence, Mr Crook complains…. You don’t even have to read hundreds of pages to get the qualification Mr Crook wants; you can start with the page on which r>g is first mentioned…. Crook then goes on to present his evidence: ‘The trouble is… capital-to-output ratios in Britain and France in the 18th and 19th centuries… were stable’…. Piketty is not arguing that r>g means that rising inequality is inevitable. Indeed, that is close to the precise opposite of his argument, which is that r>g is a force for divergence… which has at times been countered… and which can and should be similarly countered in future. Presumably, if charts of stable capital-income ratios in the 19th century provided a devastating rebuttal to his story, Mr Piketty would not have included them so prominently in the book. I think he must have imagined that readers would look at the text around them as well…”

Continue reading “Things to Read on the Morning of April 22, 2014” →

And David Leonhardt’s The Upshot is live: http://www.nytimes.com/upshot/

What first caught my eye:

Neil Irwin: How Underpaid German Workers Helped Cause Europe’s Debt Crisis: “People (especially Germans) often view the crisis…

…through this frame: Profligate, free-spending nations along Europe’s southern coast (we’re looking at you, Greece, Italy and Spain) borrowed more money than they could possibly repay; then, when the bill came due, they nearly caused the collapse of the common euro currency before being bailed out by their more responsible Northern European neighbors. That’s… incomplete. The run-up in debt in Spain and Greece and Italy was the flip side of Germany’s success in containing workers’ wages and improving exports. Germany sold more stuff to Southern Europe than it bought. It took the profits and, in effect, lent the money back to those same Southern European countries. In Greece and Italy, it showed up as government borrowing, and in Spain as a housing bubble fueled by bank loans. It all fell apart once the indebtedness of the Southern European countries became too much to bear. Because all these countries use the same currency, the euro, none could relieve the pressure by devaluing their currency as they might have with their own lira, drachma or peseta…. The approach so far has largely been one of forcing steep cuts in wages and benefits on the Southern European countries…. But there’s an easier way (or what should be an easier way). Middle-income German workers could be paid more…

Dirk Hanson: Drowning in Light: “William D. Nordhaus calculated that the average citizen of Babylon would have had to work a total of 41 hours to buy enough lamp oil to equal a 75-watt light bulb burning for one hour…

…At the time of the American Revolution, a colonial would have been able to purchase the same amount of light, in the form of candles, for about five hour’s worth of work. And by 1992, the average American, using compact fluorescents, could earn the same amount of light in less than one second….

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Jeff Tsao… and his coworkers at Sandia have concluded that “the result of increases in luminous efficacy has been an increase in demand for energy used for lighting that nearly exactly offsets the efficiency gains—essentially a 100% rebound in energy use.”… Tsao calculates that, as a result, light represents a constant fraction of per capita gross domestic product (GDP) over time; the world has been spending 0.72 percent of its GDP for light for 300 years now…

6,000 years, a drop in price from 45 x 60 x 60 to 1–of 12 in the log–produces an average rate of technological change in lighting of 0.2%/year, and with a spending share of 0.72% the implication that we are 90% richer today than we would be with Babylon-style lighting (and optimal adjustment of production to compensate).

To say that “90% of economic growth is due to X” is wrong, because the implication is that other factors all together add up to only 10%, and that is not true–in log-scale national income accounting there are an awful lot of 90% factors between “so poor as to face imminent death” and our present relative prosperity. And even on its own terms 90% is an overestimate: that the path that led us here was one along which improvements in illumination technology generated so much productivity growth does not mean that if we by some magical means we lost our lighting technology we could not reconfigure our economy so as to still produce most of what we do even without artificial illumination.

But it is–as Nordhaus intended it to be–a very striking illustration: if such a small part of what we regard as our economy is, when we do the obvious calculation, a source of enormous growth, and since there is little terribly special about progress in illumination, we should then thin very hard about exactly how much economic growth we have realized since the neolithic, and how different we are in our lives from our ancestors only 10,000 years ago.

Ryan Avent: Inequality: “Capital” and its discontents: “Piketty’s magnum opus is certainly not without its weaknesses…

but the quality of the criticism it has attracted provides a sense of the strength of the argument he makes. Consider Clive Crook…. He writes:

There’s a persistent tension between the limits of the data he presents and the grandiosity of the conclusions he draws.

The line doubles as a pleasingly apt description of Mr Crook’s review. He is unhappy…. Why… doesn’t Mr Piketty say that r must be significantly above g to generate the expected divergence, Mr Crook complains…. You don’t even have to read hundreds of pages to get the qualification Mr Crook wants; you can start with the page on which r>g is first mentioned…. Mr Crook then goes on to present his evidence: “The trouble is… capital-to-output ratios in Britain and France in the 18th and 19th centuries… were stable”…. Piketty is not arguing that r>g means that rising inequality is inevitable. Indeed, that is close to the precise opposite of his argument, which is that r>g is a force for divergence… which has at times been countered… and which can and should be similarly countered in future. Presumably, if charts of stable capital-income ratios in the 19th century provided a devastating rebuttal to his story, Mr Piketty would not have included them so prominently in the book. I think he must have imagined that readers would look at the text around them as well…

David G. Blanchflower and Adam S. Posen: Wages and Labor Market Slack: Making the Dual Mandate Operational: “We undertake the first econometric analysis…

…of the impact of rises in inactivity (1-LFPR) on wages in the US economy. To the degree that the rise in unemployment in the US is structural… wages should increase because of the negative shock to labor supply…. In contrast, if the rise in inactivity is largely cyclical, labor markets will see downward pressure on wages…. We find… inactives exert additional downward pressure on wages over and above the unemployment rate itself…. This pattern holds across recent decades in the US data, and the relationship strengthens in recent years when variation in participation increases. Our analysis is based on observations by state and year….

The implication… is two-fold. First, low participation is indeed an additional measure of labor market slack…. A substantial portion of those American workers who became inactive should… be expected to spring back into the labor market if demand rises to create jobs…. Second, wage inflation should be considered as the primary target of FOMC policy with respect to the employment stabilization side of the Fed’s dual mandate, at least for now…”