Category: Equitablog

Must-Read: Paul Krugman: Obamacare and the Cockroaches

Posted on by Brad DeLong

Must-Read: Still looking, without success, for conservatives at think tanks willing to be reality-based on health care…

Paul Krugman: Obamacare and the Cockroaches: “Zombie ideas are claims that should have been killed by evidence…

…but just keep shambling along, like the notion that vast numbers of Canadians, frustrated by socialized medicine, come to America in search of treatment…. Cockroaches are claims that disappear for a while when proved ludicrously wrong, but just keep on coming back…. The notion that Obamacare hasn’t really reduced the number of uninsured as a cockroach… [and] is back, as Charles Gaba notes. He says that Avik Roy’s latest is embarrassing, which I guess it is–but how much more embarrassed can the guy who did the totally spurious work on ‘rate shock’ get? I’d say, rather, that the latest is impressive in the way it uses multiple layers of misrepresentation to obscure what you might have thought was too obvious to deny…

Obamacare and the Cockroaches The New York Times

Must-Read: Ryan Cooper: How Climate Change Ate Conservatism’s Smartest Thinkers

Posted on by Brad DeLong

Must-Read: It is important to note that global warming is not unique here. There has been no sign of the reemergence of technocratic voices on the right in health care, macroeconomics, anti-poverty policy, inequality, or–increasingly–national security..

Ryan Cooper: How Climate Change Ate Conservatism’s Smartest Thinkers: “Ross Douthat grappled yesterday with the issue, arguing that…

…he’s basically okay with doing nothing….

We could be wrong; indeed, we could be badly wrong, in which case we’ll deserve to be judged harshly for misplacing priorities in the face of real perils, real threats. But on the evidence available [at] the moment, I’m willing to argue that we have our priorities in order, and the other side’s allegedly forward-looking agenda does not….

Like Clive Crook, Will Wilkinson, and Walter Russell Mead, Douthat doesn’t seriously engage with the evidence… constructs a lengthy Rube Goldberg analogy to ‘insurance’… to cast doubt on every portion of the climate hawk case, but he doesn’t take the obvious next step of trying to work through what that means on a quantitative basis…. Without numbers, Douthat’s case is nothing more than vague handwaving that reads very much like he has cherry-picked a bunch of disconnected fluff to justify doing nothing…. Saying we can chance 3 to 4 degrees of warming and that sensitivity is much lower than previously thought might give us enough space to push CO2 concentrations up to 5-600 ppm or so. But right now we’re barreling towards 1000 ppm and beyond….

Like Douthat, the few conservatives who even talk about climate (like Reihan Salam and Ramesh Ponnuru, who he mentions) are constantly saying whatever policy is on deck at the moment is no good. It’s too inefficient; it’s too expensive; it’s trampling on democracy; we should be doing technology instead, etc, etc…. Consistent advocacy against every single climate policy amounts to little more than putting a patina of credibility on the denialist views of the Republican majority.

Must-Read: Kevin Hoover: The Methodology of Empirical Macroeconomics

Posted on by Brad DeLong

Must-Read: Yes. The combination of representative-agent modeling and utility-based “microfoundations” was always a game of intellectual Three-Card Monte. Why do you ask? Why don’t we fund sociologists to investigate for what reasons–other than being almost guaranteed to produce conclusions ideologically-pleasing to some–it has flourished for a generation in spite of having no empirical support and no theoretical coherence?

Kevin Hoover: The Methodology of Empirical Macroeconomics: “Given what we know about representative-agent models…

…there is not the slightest reason for us to think that the conditions under which they should work are fulfilled. The claim that representative-agent models provide microfundations succeeds only when we steadfastly avoid the fact that representative-agent models are just as aggregative as old-fashioned Keynesian macroeconometric models. They do not solve the problem of aggregation; rather they assume that it can be ignored. While they appear to use the mathematics of microeconomics, the subjects to which they apply that microeconomics are aggregates that do not belong to any [really-existing] agent. There is no agent who maximizes a utility function that represents the whole economy subject to a budget constraint that takes GDP as its limiting quantity. This is the simulacrum of microeconomics, not the genuine article.…

[W]e should conclude that what happens to the microeconomy is relevant to the macroeconomy but that macroeconomics has its own modes of analysis.… [I]t is almost certain that macroeconomics cannot be euthanized or eliminated. It shall remain necessary for the serious economist to switch back and forth between microeconomics and a relatively autonomous macroeconomics depending upon the problem in hand.

Must-Read: Dani Rodrik: When Economics Works and When it Doesn’t

Posted on by Brad DeLong

Must-Read: I wonder: There is an awful lot of bad right-wing economics. There is much less bad left-wing economics. But if the left wing were stronger as a political movement–as strong as the right wing–would there be as much bad left- as right-wing economics. I suspect not, but that is merely a guess. But if it is a correct guess, the next question is: “Why?”

Mark Thoma sends us to Dani Rodrik: When Economics Works and When it Doesn’t: “If we take as our central model one under which the efficient markets hypothesis is correct…

…in the run-up to the financial crisis… the steady increase in house prices or the growth of the shadow banking system… wouldn’t have bothered you at all. You’d tell a story about how wonderful financial liberalisation and innovation are…. But if you took the same [set of] facts, and applied the kind of models that people who had been looking at sovereign debt crises in emerging markets had been developing… you’d get a very different kind of story. I wish we’d put greater weight on stories of the second kind rather than the first. We’d have been better off if we’d done so…

Must-Read: Zack Cooper et al.: The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured

Posted on by Brad DeLong

Must-Read: Yes. Constraining hospital and doctor-group market power is very important to creating a more efficient health-care system. Why do you ask?:

Zack Cooper et al.: The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured: “Insurance claims data for 27.6 percent of individuals with private employer-sponsored insurance in the US…

…between 2007 and 2011… [shows] the variation in hospital prices within and across geographic areas…. First, health care spending per privately insured beneficiary varies by a factor of three across the 306 Hospital Referral Regions (HRRs) in the US…. The correlation… [with] Medicare… across HRRs is only 0.14. Second, variation in providers’ transaction prices across HRRs is the primary driver of spending variation for the privately insured, whereas variation in the quantity of care provided across HRRs is the primary driver of Medicare spending variation…. Third, we document large dispersion in overall inpatient hospital prices and in prices for seven relatively homogenous procedures…. Finally, hospital prices are positively associated with indicators of hospital market power… prices in monopoly markets are 15.3 percent higher than those in markets with four or more hospitals.

Must-Read: Nick Bunker: Trying to Get a Grip on the “Gig Economy”

Posted on by Brad DeLong

Must-Read: Our smart young Equitable Growth whippersnapper Nick Bunker reads Dourado and Koopman and, correctly, sees the “gig economy” as a positive way of trying to turn our current sow’s ear of a low-pressure labor market into some reasonable facsimile of a silk purse. When put that way, what we need is not a halfway house between W-2 employees and 1099 independent contractors, but more expansionary monetary and fiscal policy:

Nick Bunker: Trying to Get a Grip on the “Gig Economy”: “The trend… starts around the year 2000…

…The sharing economy companies didn’t get started until at least eight years later… follows rather than causes the bulk of the increase in independent contracting. Dourado and Koopman point out that business dynamism… began to decline around 2000 as businesses stopped creating jobs at the rate they once did. These new gig-based or sharing economy businesses seem to be seizing the opportunity created by a structural change in the U.S. labor market rather than causing it…. If we want to understand this trend, perhaps we should change the focus of our investigations.

The upside of expanding access to the Earned Income Tax Credit

Posted on by Bridget Ansel

With the end of the year approaching, Congress has been concentrating on extending a package of tax code provisions known collectively as the “tax extenders.” The bill, which seems likely to pass, includes a number of tax credits and deductions that run the gamut from a credit for research and development, a break for Broadway shows, and some provisions left over the from the 2009 Recovery and Reinvestment Act.

One provision in the debate is the Earned Income Tax Credit, or EITC, with a temporary boost to the program being considered for permanent status. The credit is a key part—perhaps the key part—of U.S. antipoverty efforts at the moment. But while it’s done quite a bit of work in reducing the amount of Americans in poverty, it clearly has room for improvement—namely regarding who is eligible for the credit.

Among certain policymakers and researchers, a consensus of sort has emerged that workers without children should also be fully eligible for the Earned Income Tax Credit. Because the program was originally intended for workers with children, specifically mothers, workers without children don’t currently have access to the full extent of the tax credit. Given the success of the program, expanding access makes sense.

It’s worth noting, however, that these workers won’t simply go from being unaffected by the program to getting a benefit. In fact, given the structure of the Earned Income Tax Credit, some of them have seen their wages depressed by the program. Expanding access to the tax credit will rectify this problem.

When thinking about the benefits of a tax increase, cut, credit, or deduction, always remember to consider the incidence. Policymakers may raise or lower a tax rate in hopes of affecting one group of people, but the actual harm or benefit from the change might not fall directly on said group. The burden of sales taxes, for example, isn’t borne by retailers but rather passed onto consumers in the form of higher prices.

When it comes to the Earned Income Tax Credit, the full value doesn’t go to the worker. According to research by economist Jesse Rothstein of the University of California, Berkeley, employers capture about 36 percent of the value of the tax credit. By encouraging more people to enter the labor force, the EITC boosts the labor supply and pushes down wages. Employers then get to employ labor at a lower wage, and that’s how they capture some of the incidence. Workers who are eligible for the EITC see a net increase in their after-tax income, but ineligible or non-participating workers see a decrease in their incomes as they have only their wages as income and don’t get the tax credit. Allowing these workers to get the EITC would rectify this problem.

At the same time, given this partial capture of the tax credit via lower wages, policymakers might want to consider other ways to shift the bargaining power of workers. One way would be increasing the minimum wage, which would also prevent the partial capture. A higher minimum wage and an expanded Earned Income Tax Credit are complementary policies, rather than substitutes for each other. At the same time, a policy like the EITC might be less effective during a period of slack labor market. So fiscal and monetary policy geared toward full employment would be a good complement. The Earned Income Tax Credit is far from perfect, but it is quite good. Building on its success, expanding complementary programs, and applying its lessons to other programs are all things policymakers should consider in the year ahead.

Update 1:54 PM on 12/15/2015: For readers interested in more information on the EITC, check out Jesse Rothstein’s recently published Equitable Growth brief on the issue.

 

(Morgan Lane Photography/Veer Photo)

Trying to get a grip on the gig economy

Posted on by Bridget Ansel

If headlines on websites and anecdotes from residents of major urban areas were evidence, the rising importance of the gig economy would be without doubt. But the plural of anecdote isn’t data. Amid the growing hype about “sharing economy” companies such as Uber, Airbnb, and TaskRabbit, analysts have gone to the available data to see if this trend is actually important for the overall economy. The evidence so far has been less than kind to the excitement over the immediate transformation of the U.S. labor market into a gig economy. But even if these companies end up being important players in the years to come, they certainly are not the catalyst of radical change right now.

The first place analysts turned to in order to evaluate the gig economy was survey data—specifically, data from the U.S. Bureau of Labor Statistics.  Josh Zumbrun and Anna Louie Sussman of the Wall Street Journal and Adam Ozimek of Moody’s Analytics took a look at the BLS data and found no evidence of an increasing amount of workers registering as self-employed or freelancing, or even that these workers make up a large share of the nation’s labor force. The share of U.S. workers that are self-employed is about 6 percent, according to one BLS data series.

A study by the Freelancers Union and Upwork last year, however, found a much larger role for self-employment. The study claimed that 53 million workers, or about a third of all U.S. workers, were freelancers in 2014. That’s a headline-grabbing number, but as Larry Mishel of the Economic Policy Institute shows, the data are a bit overstated. In short, the study considers anyone who made any money outside of a traditional employment situation a “freelancer,” but doesn’t consider whether that work is the person’s main source of income. Only about 35 percent of the study’s “freelancers” are independent contractors who support themselves through independent work. That group of workers only makes up 12 percent of the workforce.

Another way to look at this question is to look at tax data on contractors. The kind of tax form generated by a working relationship—a W-2 for traditional employment and a 1099 for contract work—can give an estimate of the relationship between the two kinds of employment. In a new paper for the Mercatus Center at George Mason University, Eli Dourado and Christopher Koopman look at the trends in the number of these forms using data from the Internal Revenue Service. They find that, since 2000, there has been a significant increase in the number of a certain kind of 1099 forms (1099-MISC) as the growth in W-2 forms has stagnated. The absolute number of W-2 forms is still much larger, however, than the number of 1099s. Other research has found a similar trend.

What’s particularly interesting about the trend Dourado and Koopman find is that it starts around the year 2000. The sharing economy companies didn’t get started until at least eight years later. That means the rise of sharing economy companies follows rather than causes the bulk of the increase in independent contracting. Dourado and Koopman point out that business dynamism—the rate at which new businesses are started—began to decline around 2000 as businesses stopped creating jobs at the rate they once did. These new gig-based or sharing economy businesses seem to be seizing the opportunity created by a structural change in the U.S. labor market rather than causing it.

Where does this leave us on the importance of the gig economy? The data show that independent contractors won’t become a major share of workers anytime soon. And while the number of contractors may have increased in recent years, sharing economy companies aren’t the likely cause. If we want to understand this trend, perhaps we should change the focus of our investigations.

(AP Photo/Jeff Chiu)

Must-Reads: December 14, 2015

Posted on by Brad DeLong
  • Steve Greenhouse:
    A Safety Net for On-Demand Workers?: “With Los Angeles having approved a $15-an-hour minimum wage and with many Uber drivers netting considerably less than that per hour, why exactly shouldn’t drivers be covered—and protected—by minimum wage laws?”
  • Miriam Ronzoni: Where Are the Power Relations in Piketty’s Capital?: “There seems to be a friction between the diagnosis… of the power of capital… and the suggested cure… [of] well-minded citizens… recogniz[ing] the… problem” :: The extremely-sharp Miriam Ronzoni excellently puts her finger on a substantial hole in Thomas Piketty’s _Capital in the Twenty-First Century_…
  • Ananya Roy: The Land Question: “The infrastructure problem, it turns out, is effectively a land problem…”
  • David Roberts: Why Conspiracy Theories Flourish on the Right: “The most engaged conservative voters… won’t trust conservative elites any more than they trust liberals, scientists, or the media…”
  • Matt Bruenig: Why Education Does Not Fix Poverty: “To the extent that education does nothing to provide better income support for those who do find themselves in these vulnerable situations, its effect on overall poverty levels will always be weak, or, as with the US in the last 23 years, totally nonexistent…”
  • Mark Thoma: Why It’s Tricky for Fed Officials to Talk Politically: “I think I disagree with Brad DeLong…” :: I would beg the highly-esteemed Mark Thoma to draw a distinction here between “inappropriate” and unwise…
  • Matthew Yglesias: Trumpism Is a Natural Consequence of the GOP Refusing to Moderate on Taxes or Immigration: “There has been no meaningful move to the center on economics, and–as predicted–the results are ugly…” :: “[Republicanism] is almost like you are in a religion…you are not leaving your religion…
  • Ben Thompson: Digital Dopamine: As someone who in 1993 put my copy of “Civilization” in the microwave, on the grounds that I could be either a computer-game addict or a deputy secretary of the Treasury, but probably not both, I have very mixed feelings about this…
  • Robert Johnson, Brad DeLong, Linda Bilmes, and Steve Clemons: Connecting American Foreign Policy to Economic Policy: “How might a reimagined American foreign policy… bolster the… economy…?”
  • Steve Roth (2014): The Pernicious Prison of the Price Theory Paradigm: “Steve explains it all far better, with circles and arrows and a paragraph on the back of each one…”

Must-Read: Steven Greenhouse: A Safety Net for On-Demand Workers?

Posted on by Brad DeLong

Must-Read: Steve Greenhouse: A Safety Net for On-Demand Workers?: “For many Americans who care about how workers are treated…

…their biggest concern about the much-ballyhooed ‘on-demand’ economy is the way that Uber, Lyft, and other ‘gig economy’ companies have rushed to treat their workers as independent contractors. For employers, the advantages of this strategy are huge…. You don’t have to follow minimum wage, overtime, or employment discrimination laws, you don’t have to make employer contributions to Social Security, Medicare, or unemployment insurance, and your workers can’t unionize…. Alan Krueger… and Seth Harris… propose that Congress update the nation’s labor laws and create a third category of workers: independent workers… [who] should be covered by employment-discrimination laws, they should have the right to unionize and bargain collectively, and their employers should pay Social Security and Medicare taxes. But Krueger and Harris argue that these ‘gig economy’ workers shouldn’t be covered by minimum wage and overtime laws because, in their view, it’s so hard to keep track of exactly when they’re working….

Their paper left me with numerous questions: Krueger and Harris say that on-demand companies shouldn’t be required to provide workers’ compensation… [but] should be able to opt into workers’ comp as they wish…. Krueger and Harris say that without workers’ comp, workers can always sue under tort law, but that wouldn’t be a satisfactory alternative in many cases…. Krueger and Harris say that on-demand employers shouldn’t have to pay into the unemployment insurance system…. [But] many Uber drivers work 30 or more hours a week, and many have driven for that company for more than a year. So why shouldn’t they be covered by unemployment insurance, just like regular workers?… Krueger and Harris write that Lyft and Uber drivers are a ‘canonical example of independent workers.’ But the California and Oregon labor commissioners and many legal experts say that Uber and Lyft exercise such great control over their drivers that the drivers should be considered employees….

A study that Krueger did, done in conjunction with Uber’s chief of research, found that Uber drivers gross $17.50 an hour on average in 20 cities…. But after subtracting the cost of gasoline, insurance, auto payments, and auto maintenance, many drivers say they net just $10, $11, or $12 an hour. With Los Angeles having approved a $15-an-hour minimum wage and with many Uber drivers netting considerably less than that per hour, why exactly shouldn’t drivers be covered—and protected—by minimum wage laws, especially when Uber’s and Lyft’s apps can easily calculate how much time drivers spend carrying passengers and driving to pick up passengers?…