Category: Equitablog

Should-Read: Reading the thinking of the Republican legislative caucus is always difficult, because they:

• are terrified of getting turfed out at the next election (more terrified of the primary than the general, but still);
• are not focused on the idea that policies need to work to be politically popular in the long run;
• have a circle of advisers largely limited to those who have told them what they wanted to hear and what was politically convenient for them to hear in the past.

Thus standard technocratic reality-based habits of thought often do not apply. Here, however, Austin Frakt finds Lamar Alexander getting it.

I would add that a great many Republican governors who have the Medicaid expansion money would like to keep it, and a great many Republican governors who do not have the Medicaid expansion money would like it block-granted to them:

Austin Frakt: Senator Lamar Alexander and Endless Can-Kicking Repeal: Senator Lamar Alexander understand how hard crafting health policy is…

…said replacing Obamacare could take longer than the education bill he worked to pass last year, which took six years:

That was hard, but this is even more difficult because we spent six years as the Hatfields and the McCoys adopting our positions and shooting at each other. So building consensus in an environment like that is hard to do. But if we keep in mind that we’re trying to help people who are hurting and trying to keep people from being hurt, then that will encourage consensus.

More than six years! Making predictions in this environment is a fool’s errand, but I’ll do it anyway. I expect repeal with delay will happen by reconciliation. But the delay will be two years…. Then… there will be no GOP replace plan in time. What then? Either Congress will kick the can and delay repeal further or key parts of the ACA will expire. This process will repeat itself indefinitely…. If the GOP cannot craft a plan in two or so years, they will never do so. Never. Each election cycle will be too disruptive. A health care bill is much harder than an education bill. If you haven’t noticed, health care is a third rail onto which primary and general election opponents attempt to push one another. Endless, can-kicking repeal will be the best, achievable alternative.

But the uncertainty is terrible for insurers, as well as hospitals and state legislators trying to manage Medicaid programs. Repeated delayed repeal will probably lead to states with no marketplace insurers, a cessation if not retrenchment of Medicaid expansion, and will threaten the movement toward value-based payment. Senator Alexander may get this, but I’m not sure the rest of his caucus does.

Should-Read: There is, as of yet, no Trump fiscal policy plan. There is only a plan to have a plan to have a plan.

On the tax side, getting good policy looks hopeless: another big tax cut for the super-rich and the rich, sold to outsiders as something that will induce a tidal wave of entrepreneurial activity and sold on the inside as simply allowing you to keep your money that would otherwise flow to the losers and the cheaters and the moochers.

On the spending side… at the moment it does indeed look like money for nothing: have the government pay for projects most of which would have been built by privates anyway, and then entrench monopoly pricing of what ought to be free public-good infrastructure for a generation: a zero on the short-term Keynesian boost to employment and production, a zero on the medium-term Wicksellian rebalancing to allow the normalization of interest rates, and a zero on boosting America’s long-term potential by filling some of the infrastructure gap.

As I have said, however, there is a potential key at hand here: it is not in Donald Trump’s interest for his infrastructure plan to be a failure. It is in his interest for it to build many, many large things. The debate can be moved here.

Paul Krugman: Infrastructure Build or Privatization Scam?: “Trumpists are touting the idea of a big infrastructure build…. But remember who you’re dealing with…

…you are at great risk of being scammed…. It’s not a plan to borrow $1 trillion and spend it on much-needed projects…. Private investors do the work both of raising money and building the projects–with the aid of a huge tax credit that gives them back 82 percent of the equity they put in…. You should immediately ask three questions….

First, why involve private investors at all? It’s not as if the federal government is having any trouble raising money…. One answer might be that this way you avoid incurring additional public debt. But that’s just accounting confusion…. Second, how is this kind of scheme supposed to finance investment that doesn’t produce a revenue stream? Toll roads are not the main thing we need right now…. Third, how much of the investment thus financed would actually be investment that wouldn’t have taken place anyway? That is, how much “additionality” is there?… All of these questions could be avoided by doing things the straightforward way: if you think we should build more infrastructure, then build more infrastructure, and never mind the complicated private equity/tax credits stuff.

You could try to come up with some justification for the complexity of the scheme, but one simple answer would be that it’s not about investment, it’s about ripping off taxpayers. Is that implausible, given who we’re talking about?

Must-Read: Andreas Fagereng et al.: Heterogeneity and Persistence in Returns to Wealth: “Twenty years of population data from Norway’s administrative tax records [show]…

…in a given cross-section, individuals earn markedly different returns on their assets, with a difference of 500 basis points between the 10th and the 90th percentile…. Heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within asset classes…. Returns are positively correlated with wealth… have an individual permanent component that accounts for 60% of the explained variation….

For wealth below the 95th percentile, the individual permanent component accounts for the bulk of the correlation between returns and wealth; the correlation at the top reflects both compensation for risk and the correlation of wealth with the individual permanent component. Finally, the permanent component of the return to wealth is also (mildly) correlated across generations.

Should Read: Duncan Black: Everybody Wants You: “I do think the upper class twits that rule Britain really do believe that the continent needs them (or thinks they do, effectively the same thing). They don’t…

…And even if Italy is desperate to sell you Prosecco, good luck trying a similar pitch on every other EU country.

Boris Johnson’s approach to Brexit has been ridiculed by European ministers after he told Italy it would have to offer tariff-free trade in order to sell its prosecco in the UK. Carlo Calenda, an Italian economics minister, said it was insulting that Johnson had told him during a recent meeting that Italy would grant Britain access to the EU’s single market “because you don’t want to lose prosecco exports”. “He basically said: ‘I don’t want free movement of people but I want the single market,’” he told Bloomberg. “I said: ‘No way.’ He said: ‘You’ll sell less prosecco.’ I said: ‘OK, you’ll sell less fish and chips, but I’ll sell less prosecco to one country and you’ll sell less to 27 countries.’ Putting things on this level is a bit insulting.”

I’ve heard enough similar statements from the twits to think they really buy their own bullshit. Soon nobody else will!

Should-Read: I wrestle with this political economy puzzle unsuccessfully myself. I am equally flummoxed:

Duncan Weldon: Negative Yields, the Euthanasia of the Rentier, and Political Economy: “I understand the mechanics of engine that took us here but not what the driver was thinking…

…Since approximately mid 2010 (I’d date it to the Toronto G-20) an incomplete economic recovery in the developed economies has been increasingly reliant on monetary policy to accelerate it with fiscal policy acting as brake… especially in the Europe and to a lesser extent in the US…. Years of tight fiscal policy and monetary loosening have taken us to where we are…. I am really struggling with is the political economy that drove it….

The death of the rentier was supposed to be a side effect of an economy operating at full employment. Instead, across much of Europe the rentier is being gradually euthanised whilst workers continue to suffer from weak real income growth and high unemployment….

A bund or gilt today is a very different proposition from what it was a decade ago… the income is non-existent and there is an increasing risk of a (large) capital loss. In effect, the monetary policy aim of pushing people into riskier assets has made “safe” assets more dangerous. And this is why I don’t understand the political economy that has brought us tight fiscal and easy money–it simply isn’t creating enough winners to be sustainable….

Of course the voting public don’t seem particularly keen on deficits…. It may be that… this is the best argument for helicopter money. If fiscal policy makers won’t do what is required, then perhaps monetary policymakers can…

Should-Read: Aaron Carroll: Will “Repeal and Delay” Be the Next “Doc Fix”?: “I’m seeing a lot of chatter on how one thing Republicans can do in January is ‘Repeal and Delay’…

…It’s going to be a long, hard slog to create a “replace” plan. In spite of repeated claims that it’s right around the corner, they really haven’t done it in the last 6 years. It seems silly to think they’ll get to one fast. Many won’t want to wait for that to finally claim victory in “getting rid of the hated Obamacare”. This allows them to pass a law, claim victory, and punt the actual change to after the midterms (which will avoid a debacle like we saw in 2010 for the Democrats). Plus, some think this will put the Democrats over a barrel. If they don’t come to the table and reach an agreement, then the whole thing will blow up, and Republicans can blame it on them.

I don’t know if I agree with that. I don’t see Democrats suddenly caving any more than the Republicans caved in 2009 and 2010. I think they’ll be able to spin that the Republicans broke the system, and they own it. At the very least, I think we’ll see a standoff. In fact, I think it’s very possible that we’ll get our new “doc fix”. Every six months to a year, everyone will panic that they health care system is about to blow up, right up to the last second there will be news stories predicting armageddon, and then Congress will agree to “kick the can” down the road another six months. The difference here is that instead of just doctor reimbursement being the thing held ransom, the health insurance and health care of more than 20 million people will be, as well as all the industries that depend on stability for financial success. So basically all of them.