Must-Read: : Brexit:
Category: Equitablog
Must-Read: Ria Misra: No, Now This Is Officially the Hottest Earth Has Ever Been [UPDATING]
Must-Read: Courtesy of Erik Loomis of Lawyers, Guns, and Money: Yes, it is hot. But it’s a dry heat. Why do you ask?:
: No, Now This Is Officially the Hottest Earth Has Ever Been [UPDATING]: “It’s getting pretty hard to keep track of all the heat records we’ve been breaking recently, isn’t it?…
…Don’t worry, we’re here to help. NOAA’s latest data reveal we just wrapped up the hottest winter the U.S. has ever seen—just like last summer (which also broke its season record), last year (another record-smasher), the year before that, and a whole chain of recent individual hottest months, knocking each out one after the other like dominoes. It’s almost like there’s a pattern in all this, isn’t it? Almost as though our planet was locked into some sort of terrible, human-induced cycle of gradual warming…. Anyway, we’ll be back to update you here next month (or shortly thereafter)….
UPDATE April 19, 2:12 pm: Sorry, February, you thought you were pretty hot, but March laughs at your attempts at hot temperatures. According to NOAA’s latest data, the new hottest month ever was this March, marking the 11th consecutive month in a row that record has been broken…. UPDATE May 18, 1:15 pm: Congratulations, humanity—we did it! (It, in this case, being cooking our planet into a slow rolling boil.) NOAA’s latest climate update reveals that we just wrapped up the hottest April ever recorded. That gives us twelve consecutive months—a full year—in which every single month set a new temperature record. Will next month make thirteen? Probably! See you then, my warm friends. UPDATE June 20, 8:45 am: And here we are at lucky number 13 of the hottest consecutive months ever recorded—if by ‘luck’ you mean an unstoppably rising heat wave, accompanied by an unsavory mix of both droughts and floods. (Note: This is no one’s definition of luck.)
Must-Read: Jamelle Bouie: Is American Really in an Anti-Establishment Rage?
Must-Read: : Is American Really in an Anti-Establishment Rage?: “The same people who disapprove of Congress will readily re-elect most members to the House and Senate…
…Just 24 percent of Americans described themselves as ‘angry’ about the federal government…. Forty-seven percent said they were dissatisfied, which is similarly low compared with previous surveys…. 85 percent of Americans said they were satisfied [with the economy]…. The number of Americans who say they are personally worse off has taken a sharp decline since the last presidential election…. Layoffs are down… job openings are up; earnings are up…. For all the talk of anger and dissatisfaction in the Democratic primary, it’s also true that a majority of Democrats back the establishment candidate…. And while there’s plenty of evidence for the case that Americans are angry with the political system—in a November survey from NBC News and the Wall Street Journal, 54 percent said the system was ‘stacked’ against them—this doesn’t jibe with the fact that most Democrats are fine with Hillary Clinton as their nominee or that—before Trump won—most Republicans were fine with a conventional candidate as theirs….
Despite this, Americans also insist they’re angry about the political system and dismayed at the country’s direction. And while primary electorates are far from representative of Americans at large, the obvious popularity of figures like Bernie Sanders and Donald Trump speaks to something…. Voters aren’t uniformly frustrated or frustrated in the same ways, and whatever anger and frustration they have doesn’t translate to broad support for either of the candidates who seek to harness it. What we should do, instead, is try to pinpoint the nature of the most salient kinds of anger and frustration. On the right, the most important dynamic is racial resentment and white status anxiety…. On the left, we’re looking at the rumblings of a generation hit hardest by the Great Recession caught in the winds of rising global inequality. And insofar as nonwhites are frustrated with their place in society, it likely owes to moments of highly visible and still consequential discrimination…. But even this complicates the question of discontent. Blacks and Latinos saw the worst of the recession and the recovery: Among Americans, they have the strongest case for disrupting the system. And yet they back Hillary Clinton, who is running for modest gains over the status quo…
Must-Read: John Tang: The Engine and the Reaper: Industrialization and Mortality in Early Modern Japan
Must-Read: : The Engine and the Reaper: Industrialization and Mortality in Early Modern Japan: “Economic development leads to improved health over time due to increased access to medical treatment, sanitation, and income…
…but in the short run the relationship may be negative given disease exposure from market integration. Using a panel dataset of vital statistics for Meiji Japan, I find mortality rates increased during the country’s early industrialization, with railroad access accounting for over five percent of average mortality between 1886 and 1893. Estimates from a triple-differences framework indicate that communicable disease mortality accounts for 91 percent of the additional incidence, which suggests that improved transport may have operated as a vector for transmission.
Must-Read: Barry Ritholtz: Lending to Poor People Didn’t Cause the Financial Crisis
Must-Read: One of the forms racism takes in America today is the belief that whenever anything goes wrong it must have given money away to poor, shiftless Black people. Today this song is being reprised by–who else?–Larry Kudlow and Steven Moore.
The very sharp Barry Ritholtz does the intellectual garbage cleanup:
: Lending to Poor People Didn’t Cause the Financial Crisis: “Lawrence Kudlow and Stephen Moore have revived an idea… that really should have been put to rest long ago…
…They lay the blame for the credit crisis and Great Recession on the Community Reinvestment Act, a 1977 law designed in part to prevent banks from engaging in a racially discriminatory lending practice known as redlining. The reality is, of course, that the CRA wasn’t a factor…. Here’s the heart of the Kudlow and Moore case:
The seeds of the mortgage meltdown were planted during Bill Clinton’s presidency. Under Clinton’s Housing and Urban Development (HUD) secretary, Andrew Cuomo, Community Reinvestment Act regulators gave banks higher ratings for home loans made in ‘credit-deprived’ areas. Banks were effectively rewarded for throwing out sound underwriting standards and writing loans to those who were at high risk of defaulting. If banks didn’t comply with these rules, regulators reined in their ability to expand lending and deposits.
They then argue that this was part of a broader campaign to make loans to unqualified low-income folk, which in turn caused the crisis…. The CRA… simply says that if you open a branch office in a low income neighborhood and collect deposits there, you are obligated to do a certain amount of lending in that neighborhood. In other words, you can’t open a branch office in Harlem and use deposits from there to only fund loans in high-end Tribeca. A bank must make credit available on the same terms in both neighborhoods. In other words, a ‘red line’ can’t be drawn around Harlem….
Showing that the CRA wasn’t the cause of the financial crisis is rather easy. As Warren Buffett pal Charlie Munger says, ‘Invert, always invert.’ In this case, let’s assume Moore and Kudlow are correct…. What would that world have looked like?…. (a) Home sales and prices in urban, minority communities would have led the national home market higher, with gains in percentage terms surpassing national figures. (b) CRA mandated loans would have defaulted at higher rates. (c) Foreclosures in these distressed urban CRA neighborhoods should have far outpaced those in the suburbs. (d) Local lenders making these mortgages should have failed at much higher rates. (e) Portfolios of banks participating in the Troubled Asset Relief Program should have been filled with securities made up of toxic CRA loans. (f) Investors looking to profit should have been buying up properties financed with defaulted CRA loans. (g) And Congressional testimony of financial industry executives after the crisis should have spelled out how the CRA was a direct cause, with compelling evidence backing their claims.
Yet none of these things happened. And they should have, if the CRA was at fault…. If that isn’t enough to dismiss the claim, consider this: Where did mortgages, especially subprime mortgages, default in large numbers? It wasn’t Harlem, Philadelphia, Baltimore, Chicago, Detroit or any other poor, largely minority urban area covered by the CRA. No, the crisis was worst in Florida, Arizona, Nevada and California. Indeed, the vast majority of the housing collapse took place in the suburbs and exurbs…. What’s more, many of the lenders that made the subprime loans that contributed so much to the collapse were private non-bank lenders that weren’t covered by the CRA. Almost 400 of these went bankrupt soon after housing began to wobble. I have called the CRA blame meme ‘the big lie’–and with good reason. It’s an old trope, tinged with elements of dog-whistle politics, blaming low-income residents in the inner cities regardless of what the data show…
Let’s see how much of the media picks up on this dog megaphone, and presents it to the public as trustworthy information intermediaries should…
Must-Reads: June 23, 2016
- : Expect the Worst
- : A Question For the Fed
- : What Happens When One Party Doesn’t Care About Governing?
Should Reads:
- : Why the Fed Has a Rate-Setting Problem
- : The Myth of Austerity and Growth
- (2012): IMF: Austerity is much worse for the economy than we thought
- : Neoliberalism: Oversold?
- : Growth Forecast Errors and Fiscal Multipliers
- (2010): IMF Admits Mistakes in 1997 Crisis Countermeasures
- (2015): The Macroeconomic Effects of Public Investment: Evidence from Advanced Economies
- (2013): The Reinhart and Rogoff Controversy: A Summing Up
- (2013): After crunching Reinhart and Rogoff’s data, we’ve concluded that high debt does not slow growth
- (2012): World Economic Outlook: Coping with High Debt and Sluggish Growth
- : One Economic Sickness, Five Diagnoses
- (2010): Large Changes in Fiscal Policy: Taxes versus Spending Chapter Authors
- (2002): An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output
- (2011): A Dozen Economic Facts About Innovation
- (2014): Newt Gingrich & Herman Cain Are Now Making Money Off Spam
- : Philosophy, Psychology, and Smarts: “This cultural difference results in a quite radical difference in the atmosphere that one finds in graduate education. Philosophy students experience constant anxiety about whether they are smart enough. Psychology students also experience a lot of anxiety, but it is about a completely different topic. They have this ever-present sense that they absolutely must find some way to make a concrete contribution to the field…”
- : Brexit supporters say they’re worried about immigration. The real problems are deeper
- (Late) Monday Smackdown: Jonathan Chait Takes Care of Jonathan Rauch
Making automatic stabilizers more effective for the next U.S. recession
When the next recession hits, policymakers can take steps right then and there to fight the economic downturn. The Federal Reserve can lower interest rates and the legislative and executive branches can deploy fiscal stimulus by cutting taxes or boosting spending. But another way to counteract a recession relies on steps taken before economic growth begins to turn downward, relying on so called automatic stabilizers, which trigger on when the economy worsens. Think of unemployment insurance, which laid off workers collect, or the Supplemental Nutrition Assistance Program, which is eligible for workers under a certain income threshold.
These automatic programs were designed as forms of social insurance to help people weather the shock of losing a job. But they also boast the benefit of increasing consumer spending and therefore dampening the severity of a recession just as it begins to occur and then throughout the downturn. If policymakers considered these effects in designing these programs, would their design change? That’s the question considered in a new paper.
The paper, released earlier this week by the National Bureau of Economic Research, looks at the optimal design of both unemployment insurance and the income tax in light of their ability to act as automatic stabilizers. The two authors, Alisdair McKay of Boston University and Ricardo Reis of Columbia University, investigate how the generosity of unemployment insurance and the progressivity of the tax system would change if policymakers took into account their recession-fighting abilities. Would more generous unemployment insurance put more money into the hands of suddenly unemployed workers who are likely spend it? Might it also enable workers to save less out of fear of losing their jobs? Similarly, would a more progressive tax structure keep more money in the hands of those, again, most likely to spend it?
McKay and Reis build a model that is matched to data from the United States in recent decades to help figure out the answer to these questions. What they find is that an optimal unemployment insurance system would be more generous once we consider its automatic stabilizer role. In fact, a more munificent program derived from the model would be quite significant. The optimal “replacement rate,” or how much of a worker’s wage the benefit replaces, jumps from 36 percent to 49 percent once the program’s recession-fighting attributes are considered.
In contrast, the progressivity of the tax system doesn’t change much in their model. The optimal progressivity of the tax system doesn’t really influence factors that might help fight recessions.
Part of McKay and Reis’s efforts to the fit the model to U.S. data makes the assumption that unemployment insurance doesn’t have a significantly large effect on the unemployment rate. There’s good evidence for that proposition. And empirical work finds compelling evidence that unemployment insurance played a significant role as an automatic stabilizer during the Great Recession back in 2007 to 2009 and in previous recessions.
The next U.S. recession is probably not just around the corner. But it’s never too early to start preparing. If policymakers want to give themselves (or their future colleagues) a running start, they should take a look at strengthening automatic stabilizers such unemployment insurance and consider how other types of automatic-stabilizer programs might help the broader U.S. economy when it eventually takes another tumble.
The promises and perils of health care consolidation
The Obama administration’s signature law, the Affordable Care Act, set in motion a variety of reforms to the U.S. health care system, a number of which sparked health care providers to begin consolidating and integrating the industry. Yet more than six years after the implementation of the new law, policymakers still don’t know what the consequences of health care consolidation might mean for patients up and down the income ladder.
Low Medicaid reimbursement rates and the expanded coverage of Medicaid under the Affordable Care Act are often cited as justification for the need of health care providers to consider mergers and acquisitions. But health care finance scholars are now beginning to understand what major consolidation means for patients and costs as mergers-and-acquisitions deals proliferate, among them:
- Aetna, Inc.—in an effort to reinforce its Medicare Advantage business, which is aimed at elderly and disabled patient—announced it would buy Humana Inc. for $37 billion.
- Anthem Insurance Companies Inc. announced it would acquire Cigna Corp., currently valued at $53 billion.
The Anthem-Cigna merger would primarily consolidate employer health-plan options, but if Aetna and Anthem get the green light from the U.S. Department of Justice and state regulators, the two newly-merged companies would create a powerful “triumvirate” alongside UnitedHealth Group in the for-profit insurance market, says Bob Herman of Modern Healthcare.
Three recent papers take a closer look at the effects of greater consolidation in health services. A new study focusing on the changes in hospital prices from cross-geographic and cross-product market mergers suggests that these combinations can have significant effects on prices for privately insured patients. The report, by Leemore Dafny at the Kellogg School of Management, Kate Ho at Columbia University, and Robin Lee at Harvard University, finds that cross-market mergers in the same state result in price increases of roughly 6 percent to 10 percent. The existence of either a common customer or a common insurer appears to yield measurable market power, suggesting that cross-market mergers should be carefully evaluated by federal antitrust authorities.
With respect to the Aetna-Humana and Anthem-Cigna combinations, the Department of Justice is investigating how the mergers would affect costs to consumers and availability of care, costs to employers, as well as competition in all markets. Taken together, these mergers demand even tougher scrutiny than if they were evaluated in isolation to fully consider whether consolidating providers will take steps to improve services for their less profitable patients, like those insured by Medicaid.
Last month David Newman at the Health Care Cost Institute and co-authors released a study describing the geographical variation in prices of 242 common health care services for the commercially insured. The study compared 41 states and the District of Columbia, finding that prices for medical services differed by a factor of three in some cases. The ratio of average state prices to average national price varied from a low of 0.79 (in Florida) to a high of 2.64 (in Alaska). The authors say some of this variation is probably due to differences in underlying market dynamics, such as varying market structure, a lack of transparency, or the availability of alternative treatments.
Then there’s Zack Cooper of Yale University and his co-authors, who conclude that the consolidation of hospitals alone and the resulting decline in competition may be playing an important role in rising health care costs. Prices in markets with a single hospital, for example, have prices that are 15.3 percent higher than markets with four or more hospitals, implying that hospitals with more market power use it to raise prices. Cooper and his co-authors also find that prices were higher in markets where hospitals were larger, for-profit, located in a low-income area, or had more medical technologies.
These findings, by both Newman and Cooper and their co-authors, argue against the idea that health care consolidation and integration work to better serve patients across the board. Not surprisingly, then, federal regulators have moved to block many of the so called “horizontal mergers” of hospitals and healthcare providers in the same geographic area. In 2014, using the Clayton Antitrust Law of 1914, the Federal Trade Commission won it’s first-ever litigated case challenging a merger between St. Luke’s Health System, Ltd. and Saltzer Medical Group in Nampa, Idaho.
Yet the health care industry overall continues to consolidate through cross-market mergers of providers from different geographic or product markets in healthcare. Aetna and Anthem will have to establish a court defense for their deals to claim that the expected efficiencies of consolidation counterbalance their merger’s anti-competitive effects for regulators and consumers alike. Health care consolidation may offer some promise of improved operational and network efficiencies, but perhaps also some peril if the benefits of a more integrated health care system are not widely shared both up and down the income ladder and across the diverse ethnic and racial communities in the United States.
Must-Read: Tren Griffin and Friends: Gordon and Varian Approaches to Understanding the Ill-Named “Secular Stagnation”
Must-Read: : Gordon and Varian Approaches to Understanding the Ill-Named “Secular Stagnation”: Tren Griffin and Friends…
Must-Read: Ryan Avent: Expect the Worst
Must-Read: the sharp Ryan Avent, I think, nails it:
: Expect the Worst: “It wouldn’t make sense for the Fed to target real GDP growth, but then, the Fed is not really in that business…
…The Fed is also unable to control the long-run real interest rate, which is a function of global saving and investment. What’s more, it does seem clear that the global real interest rate has settled down to a level of approximately zero. But does it follow that the Fed should then either 1) set a high nominal interest rate in order to achieve higher inflation, or 2) keep its interest rate low and accept low inflation? I don’t believe so…. It is not the case that the Fed is choosing low rates and inflation expectations are therefore converging toward a low level…. The Fed has been targeting very low inflation, and falling inflation expectations imply much lower interest rates in future. This dynamic is there back in 2013. In its projections the Fed indicates that rates will rise steadily, even as it projects that inflation will be extraordinarily low, just over 1% in 2013, converging, finally, toward 2% by the end of 2015. Essentially every set of Fed projections since then has shown the same thing. It allowed its QE programmes to end despite too-low inflation, and it raise its interest rate in December despite too-low inflation. The Fed has signalled very strongly that markets should expect inflation to remain at very low levels, indeed, below target. It would be shocking if inflation expectations hadn’t trended inevitably downward….
Is there a route out?… Where in the past the Fed has promised to raise rates even as inflation stays low, it could instead promise to keep them low no matter what, even if, and indeed until, inflation rises above the target. If the Fed wants higher nominal rates in a world of low real rates, it must cultivate higher inflation…. The Fed can choose whether nominal rates get stuck near zero or rise to a higher, safer level. Right now, unfortunately, it is steering the American economy firmly into a low-rate rut.