Must-Read: James Kwak: The Deduction Fairy: “Incoming Treasury Secretary Steven Mnuchin promised a big tax cut for corporations and the ‘middle class’, but not for the rich…

…“Any tax cuts for the upper class will be offset by less deductions that pay for it,” he said on CNBC. This is impossible. The tax cutting mantra comes in two forms… [1] reducing the overall tax burden on the rich will turbocharge the economy… doing all those other wonderful things that rich people do… [w2] we should lower tax rates to reduce distortions in the tax code, but we can maintain the current level of taxes paid by the rich by eliminating those famous “loopholes and deductions.” Donald Trump the candidate stuck with the former: his tax proposal, as scored by the Tax Policy Center, gave 47% of its total tax cuts to the top 1%, who also enjoyed by far the largest reduction in their average tax rate. Mnuchin’s comment implies that he favors the latter….

When it comes to the truly rich, however, there just aren’t enough deductions out there to eliminate. You can only deduct interest on a mortgage up to $1 million. The fanciest employer-provided family health plan isn’t worth more than $30,000 or so. The aggregate limit for employer retirement plan contributions is around $50,000. At the top end of the wealth hierarchy, where people make millions or tens of millions of dollars per year, these are rounding errors; eliminating these deductions wouldn’t even make up for a reduction in tax rates of a single percentage point…. The biggest tax breaks for the very rich… are the preferential tax rate for capital gains, the deferral of taxes on those gains until you sell the assets, and the step-up in basis at death…. The idea that you can reduce tax rates without reducing the tax burden at the top end of the income distribution is a fantasy on par with the idea that you can increase tax revenue by raising rates—plausible in theory but impossible given current reality. That Mnuchin is taking this line is simply evidence that the Trump administration will try to reconcile a massive tax cut for the rich with their fake-populist rhetoric for as long as possible.

In the end, we know which one will win out.

Must-Read: As I wrote in reply to Neville Morley, in the twentieth century the pace of explosion in humanity’s technological capabilities and material wealth has been so great that the economic-technological strand of history is profoundly and substantially determinative of all other aspects of human history. Before 1700, however, the economic is the largely-static background against which history takes place: only in the [longue duree][] does economic history become a character in any narrative. And from 1700 to 1870? Let me turn the mic over to John Stuart Mill (1871):

Hitherto it is questionable if all the mechanical inventions yet made have lightened the day’s toil of any human being. They have enabled a greater population to live the same life of drudgery and imprisonment, and an increased number of manufacturers and others to make fortunes. [And] they have increased the comforts of the middle classes. But…

Then Mill goes off into the necessity for conscious and artificial–and mandatory–fertility control to dismiss the Malthusian Devil. But the point–that up until 1870 the world was still profoundly pre-industrial in its bulk–is inescapable.

Neville Morley: When It Changed: “Eric Hobsbawm[‘s]… short twentieth century… [an] idea… found in Stefan Zweig’s Die Welt von Gestern…

…and the 21st Century began in 1989 with the collapse of Soviet communism…. DeLong starts with the question of whether the economic history of the 20th century is better organised around the ‘short’ (1914-1989) or ‘long’ (1870-2012) version, arguing for the latter on the basis of jumps in Total Factor Productivity and on the demographic transition; as he notes, the case for the short C20 is founded on (a) the idea that the crucial part of the Industrial Revolution had long since taken place and (b) the dominance of Marxism-Leninism and ideological struggle (which is of course Hobsbawm’s main focus). Milanovic’s response is essentially to re-assert the characterisation of the twentieth century in terms of the struggle between capitalism and an alternative political-economic philosophy, which naturally leads him back to Hobsbawm.

As both note, what’s really driving this difference of opinion is a different choice of subject matter… with a certain hint that some approaches are more significant than others, at least when it comes to characterising the Twentieth Century as a period…. Periodisation… is always silly. But it also seems to be inevitable. As DeLong noted on Twitter, we’re story-telling apes, making sense of the world through a [rocess of selection, simplification, juxtaposition and connection…. Why centuries? I would speculate that part of the reason is the shift from understanding the past in terms of the regnal periods of monarchs or dynasties (‘the Elizabethan Age’; ‘the Victorian Era’), as a move to a… less overtly Great Man orientated view…. Gibbon’s… (allegedly) most fortunate period in history, “the period which elapsed from the death of Domitian to the accession of Commodus”, has changed its label from ‘the Age of the Antonines’ to the Second Century… plac[ing] increasing emphasis on systematic explanations–with the stability of the Second Century doomed to be shattered not by the moral failings of Caracalla but by the Antonine Plague and the Third Century Crisis….

A century is longer than a normal lifespan, but a short enough period of time to be humanly comprehensible…. Where this becomes trickier… is the subtle shift from centuries as a framework within which we locate events and developments… to centuries as a means of conceptualising and even explaining…. Defining the 20th Century… in terms of, say, the struggle between capitalism and communism, privileges certain sorts of historical development… implies that they are the driving force behind events more generally, smuggling in interpretation in the guise of chronological arrangement…. Unless you do assume that one strand of historical development–changes in productivity, or technology, or ideology–is determinative of all the others, then there’s no particular reason to assume that everything will change according to the same chronological pattern…. Our desire for narrative coherence wants moments… to offer a definitive ending, or at least a new chapter; history goes on resisting such simplification.

Should-Read: The Republicans think they can take a vote to dismantle ObamaCare in January without passing a replacement–and then postpone the dismantling until after the 2018 midterm. But in most states insurers are only participating in the exchanges–and incurring current losses from adverse selection–in order to build market position for a future in which the system is stabilized. The most likely outcome is exchange collapse unless states commit to stabilizing their own exchanges. That will happen on the west coast. That will happen in most of New England and New York. Elsewhere? We are in all likelihood facing yet another Trump-Republican policy disaster come next January:

Nicholas Bagley: Health Insurance Market Implosion: “The big risk of [ObamaCare] repeal-and-delay (well, one big risk) is that the individual insurance market will unravel before repeal takes effect. As Robert Laszewski tartly noted…

…Republicans are being awfully naïve. They seem to be ignoring the risks in the transition period, particularly because they need insurance companies to provide insurance during the transition…

Robert Laszewski: Interviewed by Sarah Kliff: “The Republicans are being awfully naive. They seem to be ignoring the risks in the transition period…

…particularly because they need insurance companies to provide insurance during the transition. Unless we have some miracle, and the exchanges become profitable, why would they stay around for two years? I think Republicans are overlooking this. Medicaid would be fine in the transition; states will continue taking that funding. But for the exchanges, having the subsidies in place isn’t enough. It helps the customer, but why should the insurance company stick around?…

You’ve got an exchange where insurers have been losing money already. Why should insurance companies continue to subsidize Obamacare for Republicans? And we’re not talking $2 million in losses, we’re talking hundreds of millions. I’ve got these small state plans I advise, and they’re losing more than $100 million this year. They don’t have the money to stay in. One plan’s board director told me recently that under heavy political pressure, they decided to stay in at 2017. And this is a nonprofit plan…. They stayed in… under the presumption that Clinton would come and fix the things…. I think you’ll have a lot of plans decide not to participate or participate with extraordinary high rates….

North Carolina Blue Cross Blue Shield… decided to stay in 2017, and the CEO admitted openly it was a very hard decision. They’ve lost $400 million so far. That’s what he said before Trump won. That plan can’t continue to lose that kind of money in a market that is closing. My guess… when it comes to contract signing in September, if Congress is deadlocked and hasn’t come up with the replacement yet, many will have no choice but to say, “I’m not participating,” or ram through extraordinarily high rates so they can guarantee they won’t lose money. This doesn’t necessarily hurt low-income people because they’re subsidized, and only have to pay a certain percent of their income….

The things… Republicans have hated… call an insurance company bailout… keeping them around is the only way to maintain a viable market. The problem is when you have an insurance market and the new administration declares it DOA, it will go into death throes. It will be a death spiral. The Trump administration will have put it in a death spiral. The only way to fix that is if you subsidize the market. If you just subsidize the consumers, that doesn’t do any good….

What they have to do, and I don’t think they’ll do, is take the defunding bill they use to repeal Obamacare and reestablish the risk corridors and reinsurance fund. They have to do it inside the budget bill; otherwise they’ll need 60 votes…. They have do is reestablish… the so-called insurance company bailout, because if they don’t, they’re going to have a catastrophic result come 2018…. I think Republicans need to reimplement the risk corridors by February or March. That is the only chance they have. I don’t think there is a single Republican member of Congress who has thought about this. I’m reading all these quotes and they’re completely blind to the fiasco on the individual market that they’re about to create.

Should-Read: One should seek truths from facts rather than from theories. Karl Marx, Friedrich Engels, and the Marxists, for example, decided for theoretical reasons that countries would follow, in their economic development, the track of England and, in their political development, the track of France. Not only is such a trajectory not typical: such a trajectory has never been seen anywhere, anywhen…

Friedrich Engels (1888): Notes to the “Communist Manifesto”: “(4)…. Generally speaking, for the economical development…

…of the bourgeoisie, England is here taken as the typical country, for its political development, France.

The paragraph in the 1848 Manifesto to which this note (4) is attached:

Each step in the development of the bourgeoisie was accompanied by a corresponding political advance of that class. An oppressed class under the sway of the feudal nobility, an armed and self-governing association in the medieval commune(4): here independent urban republic (as in Italy and Germany); there taxable “third estate” of the monarchy (as in France); afterwards, in the period of manufacturing proper, serving either the semi-feudal or the absolute monarchy as a counterpoise against the nobility, and, in fact, cornerstone of the great monarchies in general, the bourgeoisie has at last, since the establishment of Modern Industry and of the world market, conquered for itself, in the modern representative State, exclusive political sway. The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie…

Note, with respect to the paragraph’s last sentence, that it is not “the modern state is but an executive committee for managing the common affairs of the whole bourgeoisie.” It is, rather: “The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.” The implication is that the legislature and the judiciary–and perhaps even the civil service of the modern state may be something very different.

Should-Read: I would say “investor naivete” is currently a larger factor than “driver naivete”. But that’s just a guess…

Izabella Kaminska: The Taxi Unicorn’s New Clothes: “[Hubert Horan:] ‘For the year ending September 2015, Uber had GAAP losses of $2 billion…

…on revenue of $1.4 billion, a negative 143% profit margin. Thus Uber’s current operations depend on $2 billion in subsidies, funded out of the $13 billion in cash its investors have provided.

Uber passengers were paying only 41% of the actual cost of their trips; Uber was using these massive subsidies to undercut the fares and provide more capacity than the competitors who had to cover 100% of their costs out of passenger fares….

Silicon Valley elites justify the subsidies in the name of monopolistic growth expectations and the building of “eco-systems”. They believe if monopoly status is achieved, profitability will follow naturally from that point. Yet, as FT Alphaville has long maintained, there is no reason to assume Uber’s obliteration of local competition across the planet will create a sustainable business in the long term. Costs are costs…. As long as people have cheaper alternatives (public transport, legs), they will defect if the break-even price is higher than their inconvenience-tolerance threshold. The fact Silicon Valley thinks otherwise is sadly symptomatic of the emperor’s new clothes groupthink dominating the sector….

We recently spoke to one of Uber’s earliest London drivers…. To survive he had to forge a driver syndicate which collectively owns the underlying car capital… cars can be fully utilised 24 hours a day improving the return on capital…. To economise further, the drivers take turns with shifts, step-in for each other if and when they need leave and recruit temporary staff if and when they find themselves under staffed. They also mutualise the costs and the insurance. Yet, even then, he said “it’s really hard to make the economics work” and that “when Uber increased its margin from 20 per cent to 28 per cent it knocked our profitability in half”… If a quasi professional corporate structure like this can’t make ends meet within the Uber network, what hope does any single driver have? Uber is surviving on plain old worker naivete.

Should-Read: Richard Mayhew: The Core of the Fight: “Actuarial value and subsidy level is the core element of the coming fight on Medicare…

…The delivery mechanism through which that value is transferred is window dressing. Andrew Sprung…. ‘What precisely is the Medicare guarantee?… For 95% of seniors, the federal government will pay about 85% of the premiums for insurance that covers a bit more than 80% of the average user’s medical costs…. Low income beneficiaries have all or part of their premiums and out-of-pocket costs paid by Medicaid….’ And here is he is on the ACA: ‘For 8.8 million current enrollees in the ACA marketplace (as of June 31 30), subsidies cover an average of 73% of the premium for plans with a weighted average actuarial value of 80%…. On average, then, the ACA marketplace covers about 58% of enrollees’ costs–though that average is very uneven…. For another 12 million people whom the ACA rendered eligible for Medicaid, federal and state government cover close to 100% of costs….’

That is the the essence of the upcoming healthcare fights. Everything else is window dressing or mechanics to shift blame for large benefit cuts.