Category: Equitablog

We all know this.

But it is highlighted by the work of the very sharp Carter Price and David Evans, who have the infographic of the month:

From the perspective of any individual state, both the Medicaid expansion funds and the health-exchange subsidy funs are free money:

The first provides federal reimbursement for new Medicaid enrollees’ covered health-care services, and reduces state-level funding burdens to the extent that state-level programs are superseded by Medicaid expansion (and every state has some such). Roughly half of the direct money flow shows up as better access to health care for the non-working poor and the working poor of states that expand Medicaid. The other half of the direct money flow shows up as hospitals, doctors, and nurses getting paid for things they currently do for free. And all of the direct flow shows up as higher incomes for those working for the health-care sector. And then there are the indirect flows: in the long run after migration of businesses, capital, and labor is completed, one extra dollar in federal money coming into a region leads to a six-dollar boost to regional economic product.

The second do the same–only for the working classes: both those who were not able to afford insurance in the malfunctioning pre-exchange small-group market, and those of the working classes who did somehow scrape up the money for insurance at the cost of great financial pressure on their budgets. Significant improvement in the health access and financial status of beneficiaries. Better income statements and balance sheets for hospitals, doctors, and nurses. And, of course, the same six-to-one long-run regional economic product multiplier.

The infographics are great–the only thing I would wish for would be for a third dimension for population density, or perhaps tracking population numbers rather than population percentages (but percentages are useful):

When we look at the Medicaid expansion map, we see graphically–literally graphically–the extraordinary unconcern of the Red State political establishments for the health and financial stability of their non-working poor and working poor, and for the financial prosperity of their health-care sectors. If you were a die-hard nullificationist in 2011 you might have argued that a Republican victory in 2012 would overturn the game board and that a Red State should not look itself into ObamaCare. But ObamaCare will be at most tweaked in 2017. And the states that failed to expand are now throwing away enough free money to make a difference on the statewide economic level between rapid and sluggish economic growth.

The only way I can find to understand the pattern of Medicaid expansion nullification is a truly extraordinary unconcern on the part of Red State politicians with their poor–whether working or non-working–and substantial insulation as a result of the rise of right-wing billionaires from financial pressures put on them by the doctors who used to be the financial fund-raising bedrock base of the Republican Party. Plus remarkable unconcern with the the health of their state-level economies. But even if they do not care about the well-being of their citizens, they should care about competing for the votes of the non-working and the working poor, shouldn’t they? Or do they just think that the poor are low-information voters, and that those who pull the lever for the Republicans will not be unhornswoggled by looking across the Missouri-Illinois or the Tennessee-Kentucky or the Mississippi-Arkansas or the Texas-New Mexico state line and thinking: “Hmmmm…”

The ineffectiveness of the voice of the doctors I just do not understand. It goes against all theories of rational-choice political economy, it does.

The picture of those at risk from a sadistic nullification opinion by John Roberts in King v. Burwell looks remarkably similar. Idaho and Nevada somehow established state-rune exchanges without expanding Medicaid, and so their working classes are insulated. And the working classes of Pennsylvania, Ohio, and Indiana are added to those at risk, as are those of Nebraska, North Dakota, and Wyoming.

Once again, the lack of power of the health lobby to move the Red-State Republican political establishments is astonishing. The lack of any sense on the part of the Red-State Republican political establishment that they are there to work for or in any sense represent the working classes of their states is astonishing

I forgot to note Ben Zipperer’s post on the labor market and the BLS Employment Report last Friday. And if I had, I would have stressed what the employment numbers tell us about how extraordinarily far to go we have before even semi-complete recovery.

There have long been a bunch of hypotheses about why the American “middle class” feels “stressed” in spite of constant real incomes and what appears to me increased utility over time as more expenditure shifts toward information goods where consumer surplus is a higher multiple of factor cost:

1. Americans are used to seeing real incomes improve at 2%/year–doubling every generation–and they have not been getting that. Living little better than your predecessors a generation ago is an unpleasant shock.

2. The things that have been becoming cheaper are not seen as things key to your “middle class” status, while the things becoming more expensive and difficult to obtain–a detached house in a good neighborhood with a short commute, health insurance, secure pensions, a good education for your children–are things that it used to be taken for granted a middle-class family could get.

3. The widening gap between the middle class and the upper class.

Now come Emmons and Noeth with a new and very interesting hypothesis: that people who have done better than their parents with respect to education and family structure are no richer, and people who have matched their parents with respect to education and family structure are poorer. In other words, people who thought they were upwardly mobile are finding themselves with no higher real incomes. And people who thought they were sociologically stable are finding themselves poorer:

Over at Equitable Growth: Apropos of my The Monetarist Mistake over at Project Syndicate, the very sharp David Glasner is annoyed, and attempts to administer a smackdown. I think he misses:

And David then goes on to write a great deal of accurate, true, and insightful things about the history of economic thought, about the Great Depression, plus some insightful but I am not sure accurate and complete thoughts about the past decade:

It wasn’t Friedman who first propounded a purely monetary theory of the Great Depression. Nor did the few precursors, like Clark Warburton, that Friedman ever acknowledged. Ralph Hawtrey and Gustav Cassel did–10 years before the start of the Great Depression in 1919…. The Genoa Monetary Conference of 1922, inspired by the work of Hawtrey and Cassel…. The Genoa system worked moderately well until 1928 when the Bank of France, totally defying the Genoa Agreement, launched its insane policy of converting its monetary reserves into physical gold…. In late 1928 and 1929, the Fed, responding to domestic fears about a possible stock-market bubble, kept raising interest rates to levels not seen since the deflationary disaster of 1920-21. And sure enough, a 6.5% discount rate (just shy of the calamitous 7% rate set in 1920) reversed the flow of gold out of the US, and soon the US was accumulating gold almost as rapidly as the insane Bank of France was. This was exactly the scenario against which Hawtrey and Cassel had been warning since 1919…. For reasons I don’t really understand, Keynes was intent on explaining the downturn in terms of his own evolving theoretical vision of how the economy works, even though just about everything that was happening had already been foreseen by Hawtrey and Cassel.

More than a quarter of a century after the fact… along came Friedman, woefully ignorant of pre-Keynesian monetary theory, but determined to show that the Keynesian explanation for the Great Depression was wrong and unnecessary. So Friedman came up with his own explanation of the Great Depression that did not even begin until December 1930…. Rather than see the Great Depression as a global phenomenon caused by a massive increase in the world’s monetary demand for gold, Friedman portrayed it as a largely domestic phenomenon, though somehow linked to contemporaneous downturns elsewhere, for which the primary explanation was the Fed’s passivity in the face of contagious bank failures. Friedman… ignorantly disregarded the monetary theory of the Great Depression that had already been worked out by Hawtrey and Cassel and substituted in its place a simplistic, dumbed-down version of the quantity theory. So Friedman reinvented the wheel, but did a really miserable job of it….

The problem with Friedman is not, as Delong suggests, that he distracted us from the superior insights of Keynes and Minsky into the causes of the Great Depression. The problem is that Friedman botched the monetary theory, even though the monetary theory had already been worked out for him if only he had bothered to read it…. We do know that the key factor explaining recovery from the Great Depression was leaving the gold standard. And the most important example of the importance of leaving the gold standard is the remarkable explosion of output in the US beginning in April 1933…. Between April and July 1933, industrial production in the US increased by 70%, stock prices nearly doubled, employment rose by 25%, while wholesale prices rose by 14%. All that is directly attributable to FDR’s decision to take the US off gold, and devalue the dollar (see here). Unfortunately, in July 1933, FDR snatched defeat from the jaws of victory (or depression from the jaws of recovery) by starting the National Recovery Administration, whose stated goal was (OMG!) to raise prices by cartelizing industries and restricting output, while imposing a 30% increase in nominal wages. That was enough to bring the recovery to a virtual standstill….

You can’t prove that monetary policy is useless just by reminding us that Friedman liked to assume (as if it were a fact) that the demand for money is highly insensitive to changes in the rate of interest. The difference between the rapid recovery from the Great Depression when countries left the gold standard and the weak recovery from the Little Depression is that leaving the gold standard had an immediate effect on price-level expectations, while monetary expansion during the Little Depression was undertaken with explicit assurances by the monetary authorities that the 2% inflation target–in the upper direction, at any rate–was, and would forever more remain, sacred and inviolable.

Whew. A long quote. But I don’t have time today to cut it down to its essentials–and David is well worth reading.

But in response I say:

1. David is, I think, correct in saying that Milton Friedman had the wrong monetary explanation of the Great Depression, and Hawtrey had the right one. But it doesn’t matter. Milton Friedman’s was the only explanation North Atlantic macroeconomics heard from 1970 to 2008. And it was the version North Atlantic macroeconomics believed, and so neglected Keynes and Minsky–and Hawtrey. Thus here, I say, is thus annoyed at me not for getting anything wrong but, rather, for reminding him of an unpleasant reality.

2. David is, I think, also annoyed at me for failing to recognize that the Lesser Depression would have come to a quick end had the Federal Reserve and the ECB committed themselves at the end of 2008 to a permanent 5%/year inflation target, and for instead dinking around with Keynesian fiscal policy and Minskyite credit policy ideas. But the failure of Abenomics to make more of a difference keeps me from being as certain as David is. I certainly believe that Neville Chamberlain’s policy of returning the British price level to its pre-1930 level and Franklin Roosevelt’s abandonment of the gold standard were monetary régime changes that worked wonders. But I do not think that justifies ignoring Keynesian and Minskyite ideas of alternative ways of restoring macroeconomic balance–especially given the illegality of a 5%/year inflation target in both the United States and in the European Union.