Month: August 2015

Today’s Economic History: Paul Krugman muses:

Paul Krugman: SPQR And All That: “Adrian Goldsworthy’s The Fall of Carthage…

…All pre-industrial societies, I thought, were Malthusian… at the edge of subsistence… [and] a small elite, 5 or 10 percent… liv[ing] on resources extorted…. This model still seems to me to be pretty good for the Roman Empire. But at least as Goldsworthy describes it, the Roman Republic at the time of the Punic Wars was something very different… social solidarity… loyal allies… strong commitment from a large fraction of the population… military manpower… durability…. Are there any other examples in history like this? And how did they do it?

Our former student here at Berkeley Lemin Wu has thought seriously and deeply about all of this. So let me crib from him. Paul asks what really are two interlinked questions:

1. What preindustrial civilizations manage to live substantially above “nasty, brutish, and short” biological subsistence–which usually means having a substantialmiddle class?

2. What preindustrial civilizations manage to then mobilize that surplus, so that their middle class-aided military aristocracy can overwhelm that of their neighbors, and then extract the fruits of plunder and empire?

The place to start is with the observation that Malthusian mechanisms are operating. “Subsistence” in Malthusian theory is a term of art. It can mean populations under such intense nutritional stress that women stop ovulating and children’s immune systems are so compromised that they drop like flies when bronchitis hits. But it does not have to. What it does mean is that the standard of living and social institutions are such that the average woman has two children or a hair more that survive to reproduce, and that as a result average rates of population growth are glacial.

Now average rates of population growth were glacial. We expect a pre-artificial birth control human population that is nutritionally-unstressed to roughly double every twenty-five year generation: that appears to happen wherever and whenever farmers newly colonize an area with abundant land previously inhabited by hunter-gatherers. Yet, as best as we can judge, between 8000 BC and 1000 BC the average worldwide rate of population growth was roughly 0.05%/year–1.3%/generation. From 1000 BC to 1 it was roughly 0.1%/year–2.5%/generation. And From 1 to 1500 it was back down to 0.05%/year–again, 1.3%/generation. Either these populations were often near and frequently over the edge of women too skinny to ovulate and children so malnourished that their immune systems were badly compromised, or powerful sociological factors were driving a wedge between how rapidly the population could, biologically, reproduce and grow, and how rapidly it did go.

As Lemin puts it, four sociological factors can drive a wedge between the post-pillage or organized extortion (by thugs-with-spears and thugs-with-scrolls) living standards of the bulk of the population and bare biological subsistence:

These four are:

1. female infanticide,
2. prolonged female virginity,
3. substantial female celibacy, and
4. a large artisan class devoted to making goods and providing services to make life comfortable and even luxurious–but making goods and providing services that do not directly enhance reproductive fitness.

Thus Greek and Roman-like female infanticide–even of girls born to full-citizen wives. Greek and Roman-like large-scale slavery: unlike the post-1807 slave population in the U.S. South, Greek and Roman slave populations did not reproduce in sufficient numbers to sustain their levels via natural increase. Western-European marriage patterns–as her father, I say you cannot marry my daughter and take her out of my house until you have inherited or established a farm of your own. Chinese lineage households–as your elder brother, I say you cannot bring a wife into this household until we get more resources. And there are other, less patriarchal ways: Phoenician and Greek Mediterranean trading networks allowing for greater variety of diet and cross-regional pooling of scarce non-food resources like tin, amber, spices, wood, and so on without substantially impacting reproductive fitness. Imperial Roman artisan productivity taking advantage of economies of scale and distribution. All of these keep “subsistence” in Malthusian theory from exactly meaning “subsistence” on the ground.

They aren’t the greatest thing since sliced bread. But it is not a society of eight average pregnancies leading to five live births, three children surviving to age five, of whom two grow up to reproduce. It is a society of six average pregnancies leading to four live births, of whom two grow up to reproduce. Most of these “preventative check” mechanisms exert draconian control over female sexuality, freedom, and autonomy. But they allow a population in balance with resources and material comfort much higher than that of the “positive check”. This, however, only answers question 1–how do you get a large middle class above biological subsistence?

There still remains question 2–how do you mobilize that middle class for collective purpose, so that your middle class-aided military aristocracy and polity can overwhelm the military aristocracy of your neighbors?

Think about this, and you will recognize that an aristocracy faces the same Malthusian pressures and dilemmas as does the population as a whole. The population, the demos, lives off the limited resources provided by the land. The aristocracy, the aristoi, live off the wedge between what the demos produce and what they consume. If the aristoi do not find social mechanisms to constrain their numbers, their standard of living will also tend to settle at a point so low that their numbers no longer grow at all rapidly. And the social mechanisms to keep the population growth rate of the aristoi down are the same–and the patriarchal mechanisms of female infanticide, prolonged female virginity, and substantial permanent female celibacy, plus in the case of the aristoi excess male deaths in war, in the duel, or in the hunt. The alternative is to wind up with a very large “upper class” indeed, one made up of huge numbers of princes–but princes who live little better than peasants, a la Armenia or La Mancha.

But there is an additional constraint on the aristoi. A single faction of aristoi controlling an agrarian territory also faces an interesting Laffer curve problem–perhaps the only real-life Laffer curve problem. Tax rates too low leave them with too few resources vis-a-vis neighboring aristocracies. Tax rates too high leave them with too-low a population base. If extent of territory is too small they get absorbed. If extend of territory is too large they suffer rebellion and fraction. Moreover, the tax collectors have to be efficient enough and the soldiers competent enough that the phalanx or whatever is large enough and skilled enough on the battlefield–which means that the upper classes live not in attractive luxury but, rather, “return with your shield or on it”, and there is a premium on figuring out how to attach the middle class to the aristoi to fill out the battle line–to acquire and maintain what Ibn Khaldun called assibiyah, which is difficult because the middle class’s share of the benefits from rule by the current dominant group is not all that large. Add in balance-of-power considerations and the natural diffusion of technology and organization thus lead us to expect to see an agrarian world dominated by ruling classes that lead dangerous warrior lives, mistreat women, and govern moderately-sized principalities in semi-stable military-political equilibrium with each other. True “empires” should be rare, and evanascent. Think Timur-i-Leng, Ashoka, or even Charlemagne.

Against this backdrop of “normal” agrarian civilization patterns, I think can see, dimly, ten substantial anomalies in pre-industrial Eurasia plus Mediterranan Africa:

1. The Arya–the people descended from or adopting the language of and the technology of those who domesticated the uniquely meek, mild, and passive Mr. Lucky, introduced the horse and chariot into the panoply of “civilization”, and spread their indo-European language group from the Ganges Delta to Norway’s North Cape and Spain’s Cape of Gibralter.

2. China–after the Chin unification its natural state seems to be that of an unnaturally-large, unnaturally-cohesive, and unnaturally-peaceful Han Empire.

3. The Greek/Phoenician urban-based colonization of the Mediterranean basin.

4. The Haxamanishya Persian Empire of Kurush and his successors.

5. The LBO of the Haxamanid Empire by Alexander of Macedon, and then the maintenance of his conquests by his–feuding–marshals and their descendents.

6. First, the bare survival of the Roman Republic; subsequently, its transformation into the Roman Empire.

7. The Arab conquests under the banners of Islam, and the integrity of the empire under the Abbasid Caliphate.

8. The Vikings–from the Shetland Islands to Iceland and Vinland to Normandy, Sicily and Tunisia, Antioch, Mickelgrad, and Kiev and Novgorod the Great.

9. The Mongols of Chingiz Khan and his descendants.

10. The British Empire from Cromwell to Churchill (which ends as something very different from an unusually large and unusually durable agrarian empire, but starts out as an agrarian thalassocracy).

And at this point I lose my ability to generalize. Everything seems very different from everything else.

For example, consider the Loyal-Spirit Great Kings of Iran–that is, the Haxamanishya–Akhaemenid–dynasty Persian emperors of 550 to 330 BC. (Yes, I know that the translation of the claimed dynastic founder’s name Haxamanish–Akhaemenes–means “having the mind of a follower”; but really! Loyal-Spirit.) They ruled from the Oxus to the Nile, from the Danube to the Indus. They controlled nine times the area and three times the population of any previous Middle Eastern empire. This imperial construction by Kurush the Great was an extraordinary political-military feat. The empire’s maintenance and stabilization under Darayavush the Great and his successors after the dire and mysterious crisis of 522 BCE–that is probably an equal feat. Any one of Ionia, the Hittite lands, Cilicia, Armenia, Syria, Egypt, Assyria, Sumer, Akkad, Elam, Media, Parsa, Baktria, Sogdiana, and more would have made and was a fine independent kingdom on its own before the coming of the Loyal-Spirit Great Kings.

Why? And how? Luck–Kurush the Great and Darayavush the Great, certainly. But were they any greater than Timur-i-Leng, or Charlemagne, or Ashoka? They had an edge that an Ashurpanipal, Ramses, Suppiluliumas, Nebuchadnezzar, or Sargon did not. What was it?

My suspicion is that Parsa was close enough to southern Mesopotamia and also close enough to Iranian pastures. They were thus able to figure out how to tax that densely-populated irrigated-farming population of southern Mesopotamia. And at the same time they were able to figure out how to use the horse-mounted herders of the Iranian pasture. Add in the growing size of then-modern larger horse. And they had an advantage in communications, in mobility, in the use of the bow, and in the use of the rider for combat. They thus brought the age of iron and horse to the fertile crescent, and did so in a way that had not been possible in the age of bronze and chariot, or even iron and chariot. But I do not know, I do not claim to know, and I have not found anybody who does know. Nor do we know why the empire held together, save that it repeatedly almost did not.

And, of course, the rule of the Loyal-Spirit Great Kings of Iran is followed by something even more extraordinary. At the end of the Haxamanishya Empire there is what is probably best-called its LBO, by Alexander the Great of Macedon, and then by his marshals who became his successors.

They started in Thrace with about 50,000 trained Macedonian soldiers. They moved into Asia. They then added, over the next two generations, perhaps 300,000 Greek-speaking colonists. With that base, they controlled the bulk of what has been the Persian Empire for more than two centuries. They ruled over 40 millions of subjects speaking different languages while retaining their Hellenic identity. And they did so while spending most of their military energies fighting one another.

How did they manage it?

The Hellenic speakers appear to moved in with plenty of what Ibn Khaldun called assibiyah: they had their disagreements, but the one thing they agreed on was that they were Greek (or Macedonian) and the rest were barbarians. Centuries of hoplite warfare and the snake pit was Classical Greece appear to have produced an expectation of military discipline in the phalanx that others found it very hard to match–and also a substantial degree of technological superiority both in building and then in taking walled cities. It is not for nothing that people seeking to praise Demetrios of Macedon, the first Antigonid king, named him Demetrios the Besieger. Hellenic-populated fortified cities spread throughout the fertile crescent, with walls built by Hellenic engineers and masons, irritated by dams and canals designed by more Hellenic engineers, and populated by Hellenic colonists were something with little if any precedent in previous Eurasian history. Alexandria-in-Egypt. Al-Fayyum. The (surprise) ten cities of the Dekapolis. Seleukia-on-Tigris, Seleukia-in-Peria, Antiokh on the Orontes, and many, many more. Urbanization, irrigation, and colonization led to domination.

At the start of the Hellenistic age, east of Ionia and south of Crete Greek and Macedonian speakers were perhaps 1% of the population of the lands ruled by diadokhi who considered themselves Hellenes. By the end of the Hellenistic age, the number was up to perhaps 10%–as the periphery and the east fell away, as the number of Greek-speakers grew by natural increase since their kings gave them the best and ample land, and by Hellenization of the upwardly mobile. Yet the soldiers, the colonists, and their descendants retained their ethnocultural identity as *Hellenes. Four centuries after Alexander the Great, we find St. Paul of Tarsus trying to manage a fractious cult congregation that is composed of, yes, Greeks and Jews. There was a king as late as the year 1 called Strato Soter Dikaios–Strato the Just Savior–ruling in the Punjab who put an image of Athene holding a thunderbolt on the back of his coins in the year 1, of all things.

The Hellenistic military-political achievement is, I think, undervalued because the empire did not hold together under a single head. Ptolemaids, Antigonids, SeleuKids, and others warred on one another ceaselessly o

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Things to Read:

• David Anthony: The Horse, the Wheel, and Language: How Bronze-Age Riders from the Eurasian Steppes Shaped the Modern World
• Buce: The Luckiest Horse in the Fifth Millennium BCE
• Adrian Goldsworthy: The Fall of Carthage
• Michael Mann: The Sources of Social Power: From the Beginning to AD 1760
• Ian Morris (2010): Why the West Rules–for Now
• Matt Waters: Ancient Persia
• Lemin Wu: If Not Malthusian, Then Why?
• Lemin Wu, Rohan Dutta, David K. Levine, Nicholas W. Papageorge: Entertaining Malthus: Bread, Circuses and Economic Growth

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https://readfold.com/read/delong/unfinished-the-agrarian-and-other-institutions-of-antiquity-noodling-around-4sWdQAQd

Today’s Economic History: The phrase “confidence fairy” does not appear in Google Ngrams. However, “business confidence” does:

The first modern use of “confidence fairy” I can find in google is Paul Krugman’s, on July 1, 2010:

• Paul Krugman (2010): Myths of Austerity

With google reporting the second person to mention it as Joe Stiglitz in October:

• Joseph Stiglitz (2010): To choose austerity is to bet it all on the confidence fairy

Among the approximately 18,400 mentions of the phrase, google (anonymized) reports the most salient pieces of the conversation thereby started are:

1. Robert Skidelsky (2015): Debating the Confidence Fairy
2. Paul Krugman (2014): The Zombie Confidence Fairy
3. Paul Krugman (2013): The Confidence Fairy, The Expectations Imp, and the Rate-Hike Obsession – The New York Times
4. Paul Krugman (2012): Expectations and the Confidence Fairy

With a notable contribution earlier that does not use the phrase “confidence fairy” being:

• Laurence Ball and N. Gregory Mankiw (1995): What Do Budget Deficits Do?

And with the first occurrence of the idea I can find–“if confidence could return, touch all industries with her magic wand…” is in:

• Alfred Marshall and Mary Paley Marshall (1885): The Economics of Industry

Lawrence Summers (2014): U.S. Economic Prospects: Secular Stagnation, Hysteresis, and the Zero Lower Bound:
“The nature of macroeconomics has changed dramatically in the last seven years…

…Now, instead of being concerned with minor adjustments to stabilize about a given trend, concern is focused on avoiding secular stagnation. Much of this concern arises from the long- run effects of short-run developments and the inability of monetary policy to accomplish much more when interest rates have already reached their lower bound. This address analyzes contemporary macroeconomic problems and proposes solutions to put the U.S. econ- omy back on a path toward healthy growth.

Lawrence Summers (2014): U.S. Economic Prospects: Secular Stagnation, Hysteresis, and the Zero Lower Bound, Business Economics 49, pp. 65–73 http://larrysummers.com/wp-content/uploads/2014/06/NABE-speech-Lawrence-H.-Summers1.pdf

Must-Read: David Glasner: Romer v. Lucas: “In… 1959… Arrow noted that the theory of competitive equilibrium has no explanation of how equilibrium prices are actually set…

…All agents in a general equilibrium being… price takers, how is it that a new equilibrium price is ever arrived at following any disturbance?… Arrow… offered the suggestion that… agents are not price takers, but price searchers, possessing some measure of market power…. But the upshot of Arrow’s discussion was that the problem and the paradox awaited solution. Almost sixty years on, some of us are still waiting, but for Lucas and the Lucasians, there is neither problem nor paradox…. If the social functions of science were being efficiently discharged, this rather obvious replacement of problem solving by question begging would not have escaped effective challenge and opposition. But Lucas was able to provide cover for this substitution…. While Romer considers the conquest of MIT by the rational-expectations revolution, despite the opposition of Robert Solow, shows the advance of economic science, I regard it as a sign of the social failure of science to discipline a regressive development driven by the elevation of technique over substance.

I would say that Ramesh Ponnuru needs to decide whether he is going to be part of a reality-based technocratic conversation about the future of our social-insurance system, or a booster of individual politicians who evanescently catch his current fancy.

But that choice has already been made, hasn’t it?

Kevin Drum:

Kevin Drum: A Conversation About Scott Walker’s Health Care Plan: “A Conversation About Scott Walker’s Health Care PlanRamesh Ponnuru thinks I got Scott Walker’s health care plan wrong…

…I complained that Walker’s plan would cost a lot but he doesn’t tell us how he’s going to pay for it without raising taxes. Ponnuru:

Walker says he is going to reform the tax break for employer-provided plans and get savings out of Medicaid….There’s no reason to doubt that some such mix could be made to work.

I tentatively doubt it. My back-of-the-envelope guess… Walker… [has a] hole… [of] $150 billion [a year] or so, since Walker would also repeal all of Obamacare’s taxes. The only proposal he offers to raise money for this is… the Obamacare Cadillac tax… [that] even in the far future it won’t generate anything close to [that]….
 
I complained that if you don’t have continuous coverage and you get sick or have a pre-existing condition, you’re screwed. Ponnuru: ‘At that point you’d have to go to a high-risk pool.’… High-risk pools aren’t a part of Walker’s plan. He just mentions them as a possibility that states might pursue if they want to. And anyway, high-risk pools are infamous for working poorly because they’re always underfunded. Would Walker really be willing to fund them at levels high enough to actually work?
 
I complained that Walker doesn’t tell us how he’ll prevent insurance companies from raising rates on people with expensive pre-existing conditions. Ponnuru: ‘A protection for people in the group market who have maintained continuous coverage has been law since 1996. Walker’s plan would just expand and strengthen that approach in the individual market.’ That’s possible, but Walker’s plan doesn’t say this. I can only respond to things Walker actually says. What’s more, the individual market is fundamentally different from the group market…. This is tricky stuff… [that] requires more than ‘just’ expanding and strengthening HIPAA…..

Nickel summary: Ponnuru is right about the Cadillac tax pushing costs down. But I don’t think his other criticisms really hold water…. Aside from illegal immigrants, Obamacare really does try to give everyone a chance to buy decent coverage…. Walker’s plan, by contrast, doesn’t even try to cover everyone… by design. Maybe you prefer this. I don’t.

The highly-estimable Tim Duy is doing what he does best once again: worrying about the Federal Reserve’s conduct of monetary policy:

Tim Duy: Some Thoughts On Productivity And The Fed: “Yellen is leaning in the direction of taking the productivity numbers at face value…

…and seeing low wage growth as consistent with the view that the productivity slowdown is real…. The unobserved component approach suggests that productivity growth decelerated to an annualized pace of just 0.82 percent by the second quarter of this year… [in line with] Fed staff estimates of potential GDP growth range from roughly 1.6 to 1.8 percent through 2020…. Yellen might think back to the 1990’s, when a surprise rise in productivity growth temporarily lowered the natural rate of unemployment… [and] reverse that logic now and think that the arguments for tighter policy are stronger….

The bond market, with ten-year Treasury yields hovering between 2 and 2.5 percent, appears to be fiercely discounting the lower-for-longer story consistent with low productivity growth. Furthermore, low TIPS-based inflation expectations and a modest expected path for short rates also suggest little need for the Fed to tighten policy to avoid a 1970’s style inflation. The FOMC, however, has a more hawkish view…. San Francisco Federal Reserve President John Williams argued the Fed needs to engineer a substantial slowdown in growth next year. But the FOMC has yet to act on that relative hawkishness…

Let me step back and try to think through the issues from the very beginning:

When we think about what the Federal Reserve is doing right now, we need to consider four questions, only one of which which Tim Duy addresses here:

1. Is the Federal Reserve properly implementing the monetary policy strategy the FOMC has decided upon?

2. Is the monetary policy strategy the FOMC has decided upon the right strategy given the beliefs and values of the committee and the baton the Congress has given to it?

3. Has the Congress given the Federal Reserve the right baton–that is, is the mandate calling for price stability, maximum feasible employment, moderate long-term interest rates, and financial stability the right mandate?

4. Has Congress created the right institutional structure–that is, given the FOMC the proper membership and orientation?

I would argue that the answers to all four of these questions are: “No.”

It is true that over the past three decades the U.S. Federal Reserve has been the best-performing central bank of any in the North Atlantic. And it is likely that the U.S. Federal Reserve is the best-structured central bank in the North Atlantic. But, may I say: “that is a low bar”? I believe we ought to be doing considerably better.

Take my four questions in reverse order, briefly:

• The Federal Reserve was supposed to be a people’s central bank–controlled not, like other central banks, by New York money-center bankers and financiers, but by a combination of president-appointed and senate-confirmed regulators in Washington, and with some banker voice but outnumbered by representatives of “agriculture, commerce, industry, services, labor, and consumers” in the twelve regional Federal Reserve Bank cities, only one of which was New York. Its Rube Goldbergian institutional structure is a Progressive-Era and New-Deal attempt to keep it from being the victim of regulatory capture by money-center banking and financial interests. But success has been, at best, very partial.

• The Congress has handed the Federal Reserve a mandate that overweights the importance of price stability. The Fed recognizes this–it was Republican Mandate Alan Greenspan who declared and made stick that the general welfare calls not for price stability but for an average inflation rate of 2%/year. But as Larry Summers and I argued upstairs back in 1992, the balance of evidence is that the economy works better for America with a 4%/year than with a 0%/year average inflation rate. And as IMF chief economist Olivier Blanchard has noted, history since is pretty clear that at least 4%/year is better than 2%/year.

• The Federal Reserve is not living up to even Alan Greenspan’s redefinition of its mandate. As former Obama Chief Economist Christina Romer said to me as I left Berkeley for here: “Tell them that even Greenspan said 2%/year thinking it was the right inflation rate on average, but the current Federal Reserve is treating it as a ceiling”.

• It is more likely than not that the current Federal Reserve policy path will not even get the inflation rate up to 2%/year. In the past year inflation was 0.2%. It is true that we expect it to climb up toward the 1.8%/year current core inflation rate–but not all the way, only about 3/4 of the way. And both the prime-age employment rate and manufacturing capacity utilization have been drifting down since last fall. Add on economic turmoil in Europe and approaching economic turmoil in China, and this does not seem to be a good time to start raising interest rates. Or, rather, it seems like a good time only if you think the official unemployment rate is the only reliable source of information about the real state of the economy.

Remember: the last four times the Federal Reserve has started raising interest rates, it has had no clue where the economic vulnerabilities lie:

• In 2005-2007, neither Greenspan nor Bernanke had any idea how fragile mis- and un-regulation had left housing finance and the New York money-center universal banks.

• In 1993-1994, Alan Greenspan had no clue how much of an impact what he saw as small policy moves would have on long-run financing terms–but fortunately he shifted policy and stopped raising interest rates in midstream (over the protests of many on his committee).

• In 1988-1990, Alan Greenspan had no clue how much of an impact it would have on the balance sheets of southwestern S&Ls. The federal government had to give three months of total Texas state income to Texas S&Ls and their depositors who had been chasing high yields in order to clean that up.

• In 1979-1982, Paul Volcker did not realize that raising interest rates would bankrupt not only Latin America but also leave Citibank and others as zombies–things that were bankrupt, and that ought to have been shut down, but that were allowed via promises of government rescue if necessary to earn their way out of bankruptcy over the next five years.

Must-Read: Mark Thoma: Reform and Revolution in Macroeconomics): “With respect to the failure… to ask the right questions prior to the crisis…

…There was no shortage of tools…. The problem was that we had been told by the eminent thought leader(s) within the profession that the problem of deep recessions had been solved (if not by policy, then by the improvement in the operation of the economy brought about by modern technology… especially financial markets with their digital technology and physics brains). Thus, theoretical questions about deep recessions induced by financial panics were ignored or shunted off to the side…. It was a combination of the belief that the questions were unimportant combined with sociology within the profession that placed a lower value on pursuits that might have allowed us to be better prepared when the recession hit…

Manu Saadia, the author of the forthcoming book, Trekonomics, discusses the economic theories behind the creation of the Star Trek with J. Bradford DeLong, professor of Economics at UC Berkeley and former Deputy Assistant Secretary at the US Treasury. Inkshares’ Adam Gomolin is the moderator:

We have already gone 95% of the way to the replicator for basic foodstuffs…:

• https://www.inkshares.com/projects/trekonomics
• https://readfold.com/read/delong/unfinished-notes-on-trekonomics-tKdx6Njn

Must- and Should-Reads:

• Martin Sandbu: Europe’s Evidence-Free Policymaking
• Must-Read: Arindrajit Dube, Laura Giuliano, and Jonathan Leonard: Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior
• Must-Read: John Authers: Renminbi Shift Challenges Global Markets
• Ezra Kleini: “Most of [Trump’s] ideas punish legal immigrants for the actions of people coming here illegally. For all Trump’s rhetoric about loving legal immigrants, he intends to either hold them responsible for illegal immigration or hold them hostage in his fight against illegal immigration…. [Another of] Trump’s insight here is that the best way to drive unauthorized immigrants… is to target their children and families… ban unauthorized immigrants from receiving tax credits meant to help their children–children who are, remember, US citizens…”
• Jared Bernstein and Richard Kogan: Bumpy deficits, smoother ride: The historical evolution of budget deficits and growth rate
• Macro Advisers: Where is the Acceleration in Wages?
• Richard Mayhew: ACOs in Medicare
• Must-Read: Ravi Kanbur and Joe Stiglitz: Wealth and income distribution: New theories needed for a new era
• Must-Read: Matt Bruenig: The Success Sequence Is Extremely Misleading And Impossible To Code

Might Like to Be Aware of:

• David Roberts: The Chronicles of Prydain is the greatest fantasy series ever written. (Sorry, Harry Potter.)
• Lloyd Alexander: Westmark (The Westmark Trilogy): Lloyd Alexander: 9780141310688: Amazon.com: Books
• Lloyd Alexander: The First Two Lives of Lukas-Kasha
• Charlie Jane Anders: A Brilliant Cover to Celebrate 50 Years of Lloyd Alexander’s Prydain
• Ben Terris: “Perry’s zombie campaign lurches forward. He may have no money, but there’s $17 million from super PACs…. Like a brain that can no longer coordinate with its body, Perry has no control…. One must posit two questions: Can candidates in the age of the super PAC ever truly die? And what does a zombie campaign even look like?…”
• Amanda Marcotte: How ambiguity panic motivates conservative culture warriors
• Charlie Deist: Voxplaining Vox

The scarily-sharp Josh Barro tweets:

Walker and Rubio plans show the dream of repealing Obamacare is dead; now we're just haggling over price. http://t.co/UJdHKi3azA

— Josh Barro (@jbarro) August 19, 2015

And he sends me to an interesting, but I think largely-wrong, piece from Megan McArdle:

Megan McArdle: Republicans’ Obamacare Alternative, Finally: “Republicans have been saying ‘repeal and replace’…

…[but] the party has conspicuously failed to… [offer] a plausible replacement… giv[ing] these words the hollow sound of a Southern matron greeting a mortal enemy over mint juleps…. [Now] both Walker and Rubio are endorsing… converting Obamacare to a simpler, flatter tax credit… Obamacare is now setting the terms of the debate. And that debate will ultimately be fought over who Obamacare is for…. Obamacare promised that it was for the middle class. In practice, it has overwhelmingly been a program for the poor and near-poor… Medicaid… exchange policies… popular among… [the] heavily subsidized, but… with anyone who has to pay a significant chunk of the bill…. Republicans [will] become the party of universal, but lean, benefits that won’t be enough to lift people out of poverty, while Democrats become the party of generous benefits for the poor…. Who wins that debate will tell us a lot about what kind of government we’ll have in 50 years.

First of all, I think McArdle is somewhat off on the incidence of Medicaid. As best as I can tell, Medicaid dollars ultimately stick with one-third benefitting the disabled, one-third benefitting the non-disabled poor, and one third going to hospitals and practices.

The one-third of Medicaid dollars that wind up ultimately sticking to the disabled wind up making the lives of the disabled–both young and old–much better. The disabled are poor. But the disabled are not the poor. This part of Medicaid expansion is, as we tend to think of things, largely distributionally neutral. Only the truly rich can afford to pay for any prolonged period of disability out of their own resources. The rest–poor, working class, and middle class; young and old–become poor when they become disabled.

The one-third of Medicaid money that flows to the disabled makes their lives less harsh, and makes the risk of future disability less catastrophic for everybody. This is of big benefit to those current members of the middle class who are the future disabled, but do not know it yet. To say “Medicaid = the poor” is simply not right.

As best I can tell, a second third of Medicaid dollars wind up in the hands of nurses, doctors, and hospitals. They will be made richer as a result. The hope is that this money flow will diminish the amount of financial three-card-monte the medical system has to engage in. It is thus supposed to lead to a system of medical finance which is less of a cost-covering and more of a market-seeking-efficiency process.

We will see.

This shift from cost-covering to market-seeking-efficiency in health-care finance has, however, been a big–I would say the big–right-wing priority in health-finance reform for decades. And either something like Medicaid expansion–or pushing the sick poor to die in ditches–is a necessary prerequisite for it. To claim that you want a market-driven health care system while being opposed to both Medicaid expansion and pushing the sick poor to die in ditches is, at best, confused and incoherent.

It is only the third third of Medicaid dollars that winds up truly sticking to those whom McArdle’s readers think of when they think of the poor that would ever count as a redistribution. And it is not really a boost to your income–you do not, after all, spend your Medicaid benefit on riotous living. Your Medicaid benefit means that if you are poor and become sick you have a good chance of not dying, or of being poor and sick for a shorter time, or of being poor and less sick. McArdle writes of how generous health benefits that “lift people out of poverty”. This doesn’t lift anyone out of poverty the way we usually think of poverty: people in ICUs are receiving huge amounts of medical care, and if they are on the government’s dime they are the beneficiaries of enormous social-insurance transfers. But they are not thereby “lifted out of poverty”–at least, not the way most people understand “lifted out of poverty” to mean. They get more and better health care when sick. Full stop.

But that is not all!

McArdle also, I think, somewhat misses the mark when she talks about how exchanges are only attractive to the subsidized.

Who are those who would not be subsidized if they purchased on the exchanges? They are, predominantly, those who have the option of buying employer-sponsored insurance. And employer-sponsored insurance comes with its own big honking subsidy through the tax code–a subsidy that is not conditioned upon their being low- or moderate-income.

No subsidy if you purchase through the exchange.

A big subsidy if you pick up benefits through your employer.

Is it any surprise that exchange policies and pick-up among those with incomes too high to be eligible for exchange subsidies has been low? The middle class has already gotten its big health-care insurance subsidy via the combination of employer-sponsored coverage and the tax code. The exchanges simply equalize the social insurance benefit to some degree.

Moreover, the availability of the exchanges is of massive benefit to the middle class in terms of the extra freedom it provides. Families, especially families with some members subject to a pre-existing condition or that suffer some serious health problem, now know that losing your employer-sponsored insurance job no longer leaves you exposed to catastrophe. A serious medical problem is still a crisis–but not a catastrophe. This is social insurance doing what it is supposed to do. And this is of immense benefit to the middle-class right now.

Moreover as Obamacare implementation rolls forward, the balance of benefits may shift more towards the middle class. We will see choice-of-system operating at two margins: At one margin, people and employers will be choosing to take up and offer employer-sponsored coverage or resort to the exchanges. If projections that employers will continue to drop employer-sponsored health insurance are accurate, the availability of the exchanges will turn out in the long run to be of massive benefit to the middle class as employer-sponsored insurance ebbs away.

At the other margin, states and the federal government will be trying to figure out where to set the Medicaid-exchange line.

We are unlikely to wind up with employer-sponsored insurance for nearly everyone. But it could be that the exchanges will prove more attractive than Medicaid. And it could be that Medicaid will prove more attractive than the exchanges. We could, ultimately, wind up with single-payer under guise of Medicaid, with universal exchanges, or with some stable division of systems. The ObamaCare structure is very flexible. It is much more a structure to provide options for the future evolution of social insurance and private payment in health financing than in any once-and-for-all-time distribution of benefits.

Stepping back, the major argument against a relatively-generous social insurance system is always that it encourages featherbedding and idleness. But slimmer health benefit packages will not solicit greater market labor supply. It is only to a small degree that we control whether we get sick, and how sick we get–and when we do make decisions that are bad for us anyway, making those decisions even worse for us is unlikely to have much impact on behavior unless the nudges are very carefully and expertly designed.

Thus slimming down the benefits package for those who get sick seems an extraordinarily bizarre place to concentrate your energy on, if you are indeed worried about promoting featherbedding or idleness.

The only benefit for slimming down the benefits package for those who get sick is that they will allow for lower taxes on the upper middle-class (who if they get sick will then find themselves caught by the slimmer benefits package), and on the rich (who have the resources to insulate themselves from threadbare social insurance).