Category: Equitablog

Must- and Shall-Reads:

• Irving Fisher (1919): Economists in Public Service
• Jason Millman: Why Uber loves Obamacare – The Washington Post

1. Rob Dent et al.: Measuring Labor Market Slack: Are the Long-Term Unemployed Different?: “There has been some debate… Krueger, Cramer, and Cho (2014) and Gordon (2013) about whether the short-term unemployment rate is a better measure of slack than the overall unemployment rate…. The two measures are sending different signals…. One can argue that the unemployment rate is exaggerating the extent of underutilization in the labor market, based on the premise that the long-term unemployed are, in practice, out of the labor force and likely to exert little pressure on earnings. If this is indeed the case, inflationary pressures might start building up sooner than suggested by the overall unemployment rate. In a three-part series, we study the available evidence on the long-term unemployed and argue against this premise. The long-term unemployed should not be excluded from measures of labor market slack…”

2. Adair Turner: Printing money to fund deficit is the fastest way to raise rates – FT.com: “What is the right course for monetary policy? The International Monetary Fund seems to answer with forked tongue. Its latest World Economic Outlook urges that monetary policy should stay loose to stimulate growth. Yet its Global Financial Stability Review warns that loose monetary policy risks creating financial instability…. In fact the best policy is to print money and raise interest rates. That sounds contradictory, but it is not…. Most countries have opted to combine fiscal tightening with ultra-loose monetary policy, setting short-term interest rates close to zero and using quantitative easing to reduce long-term rates and boost asset prices. But… sustained low interest rates create incentives for highly leveraged financial engineering…. The Bank for International Settlements therefore argues that monetary policy should be tightened as well as fiscal, but that would depress demand yet further. We should indeed seek a swift return to higher interest rates, to remove the dangerous subsidy to high leverage…. The best way to do that, particularly in Japan and the eurozone, would be to deploy a variant of Friedman’s idea of dropping money from a helicopter. Government deficits should temporarily increase, and they should be financed with new money created by the central bank and added permanently to the money supply. Money-financed deficits would increase demand without creating debts that have to be serviced. This would lift either real output or inflation and allow interest rates to return to normal more quickly…”

3. Larry Mishel: Washington Post “Wage Freeze” Brain Freeze: “Mostly the Washington Post issues a smug assessment that ‘[n]othing in the last four decades refutes the basic case for flexible, innovative, American-style capitalism’ but then immediately negates this conclusion by saying ‘if the system doesn’t work for the middle class, it really isn’t working at all.’ If, in fact, the economy is not working for most everybody then perhaps it is worth challenging the way the economy operates, including many of the ways the Post advocates it should operate!”

4. Paul Krugman: Contractionary Policies Are Contractionary – NYTimes.com: “Terrible numbers from Japan…. The ill-considered sales tax hike of the spring is still doing major damage…. So contractionary policy is contractionary. I could have told you that, and in fact have told you that again and again. But some people still don’t get the message. In Germany, the Bundesbank president opposes expansionary monetary policy because it might reduce the pressure for fiscal austerity: ‘Such purchases might create new incentives to run up debt, besides adding to the reform fatigue in a number of countries’…. That’s actually quite an awesome concern to express at this moment. European recovery has stalled, largely thanks to fiscal contraction; inflation is far below target, and outright deflation looms; and the political basis for the European project is coming apart at the seams. And Weidmann worries that monetary expansion might make life too easy for debtors. But as Wolfgang Munchau says in a terrific column today, ‘German economists roughly fall into two groups: those that have not read Keynes, and those that have not understood Keynes’…. How does this end? We have to keep pounding on the issues, and I’m reasonably sure that Draghi and co get it. But with the largest player on the European scene living in a fantasy world, the best guess has to be that nothing much is done until there is complete political crisis, with anti-European nationalists taking over one or more major nations.”

5. Matthew Yglesias: The worst two paragraphs about American politics you’ll read today: “Ron Fournier, like many of us, is frustrated with the state of American politics…. He explains that the big problem with Obama’s approach was failing to take a page from the Massachusetts universal health care program that is in fact the model for Obamacare: ‘On health care, we needed a market-driven plan…. Just such a plan sprang out of conservative think tanks and was tested by a GOP governor in Massachusetts, Mitt Romney. Instead of a bipartisan agreement to bring that plan to scale, we got more partisan warfare. The GOP resisted, Obama surrendered his mantle of bipartisanship, and Democrats muscled through a one-sided law that has never been popular with a majority of the public.’ It is true that we did not get a bipartisan agreement. It is true that the GOP resisted. It is true that the law is unpopular. But Obama didn’t surrender his mantle of bipartisanship. The GOP took it away from him. They took it away from his as part of a deliberate strategy. They knew, as Fournier says right in this very column, that a big bipartisan health reform would be more popular than a big partisan health reform. So since Republicans didn’t want Obama to be popular, they had every incentive to refuse to reach a bipartisan agreement. And thus no agreement was reached. But… Obama and congressional Democrats delivered exactly the kind of reform Fournier says America needed. Shouldn’t they be congratulated?… In substance, you still have a progra… on the Massachusetts model…. It’s also not something Obama bungled. It’s a consequence of mismatched incentives in Washington…. The opposition party would like the president to not be associated with bipartisan initiatives…. If you don’t understand that, you’ll never understand today’s politics. Worse, you’ll be consistently making bipartisanship less likely. It’s precisely because of columns like this one that it made narrow political sense for the GOP to abjure compromise. Why bargain if any failure to reach agreement will be blamed on the president?”

6. Richard Mayhew: What a difference a year makes: “This is more of a personal note on the scramble to get the Exchanges up and running which then ran into a brick wall of Healthcare.gov not working at all last year. Last year, I spent thirty one of the thirty six hours before go-live either at work or online at home.  My major challenge was to get the web directories up and running so that they would reflect the accurate at that moment network that we were offering…. The Exchanges were narrow networks with significant targetting.  The ‘final’ networks were not really final, as we received a contract amendment to opt-in to Mayhew Narrow at Medicare + a smidge from a two hospital chain and its 300 docs at 8:30pm the night before go-live.  Since the long term solution was not in place, I had an ad-hoc solution that was ‘good enough’ to work and that required a four hour rebuild process.  I launched my final good to go web directory at 2:30AM. This year, the web directories entered the production stream three weeks ago.  One doc had the nerve to die on us, so we had to remove her, and another practice bought out a four doc cardiology practice so we had to add them, but that is the normal churn of networks.  It is routine. I received one call from a co-worker this weekend.  She wanted to know where the financial attribution schema for SNP was stored. This year, I went to a wedding where the brides were beautiful.  I refereed a championship game where I loved that it was 31 and snowing instead of 33 and raining.  I went to the birthday party of a friend’s daughter. Last year, I had a 110 hour week. This year, it is business as usual.”

7. Nick Bunker: [What’s the Value of Health Insurance?(https://equitablegrowth.org/news/whats-value-health-insurance/): “The problem boils down to this question: how much is government-provided health insurance, Medicaid and Medicare, worth to a household?… CBO answered that question using the so-called ‘average cost’ method…. Prior to 2012, the agency calculated the value of government-provided health insurance by looking at the ‘fungible value’ of health insurance…. The difference… is quite large… the average cost method increased the average income of a household in the bottom 20 percent of the before-tax distribution by $4,600, or by about 25 percent…”

Should Be Aware of:

• Rick Bookstaber et al.: An Agent-based Model for Financial Vulnerability

1. Mattias Vernengo: NDid the New Deal help in the recovery?: “Joshua Hausman… suggests… the 1936 Veteran Bonus was essential for the expansion of consumption and growth in 1936…. He says: ‘All this is not easily explained by factors other than the bonus. Monetary factors were if anything contractionary in 1936. Broad money supply growth slowed from 14 percent in 1935 to 11 percent in 1936. And in August 1936, the Federal Reserve raised reserve requirements.’ Hausman correctly notices that monetary policy had little effect on the boom in 1936, which fits what Eccles thought about that, and also about the role of monetary policy in the 1937-8 recession. The recession was for Eccles caused by a fiscal contraction largely due to two factors, the new Social Security Law that went into effect, increasing taxes, without initially disbursing payments, and the end of soldier’s bonus payments, which would add support to Hausman’s story. Yep, multipliers (effective demand) work.”

2. Jim Edwards: Morgan Stanley Analysts Visit Detroit And Love Uber: “We haven’t seen such a glowing note to investors in a long time. Taxis and car rental companies are going to die, the Morgan Stanley team suspects…. What seems to have happened is that Adam Jonas, Ravi Shanker, Paresh Jain, and Neel Mehta decided to use Uber in Detroit instead of regular taxis. Instantly, they noticed that taking Uber from the airport and around Michigan was about half the price…. They also really liked their drivers…. All three Uber drivers they encountered told them a similar story: Uber was the only job they could take that offered them enough flexibility to handle their other commitments…. At Business Insider, we’re familiar with these sudden road-to-Damascus conversions in favour of Uber. We had one ourselves earlier this year…. Uber’s software could be used for any transaction involving the physical exchange of goods or services between strangers who need to trust each other. To underscore the impression left by Uber, the Morgan Stanley team referenced the fact that the folks at Ford also believed Uber would change everything…”

Various wingnuts have started emailing me Jon Gruber videos. In them, Jon Gruber says what Gruber has always said about ObamaCare:

• That the Cadillac Tax was an unnecessarily complex and inverted long-run Rube Goldberg way of accomplishing McCain’s 2008 goal of eliminating the tax preference for employer sponsored coverage.

• That CBO’s distinction between mandates and taxes was unhelpful in either building a well-working system or understanding how it would work.

• That the gamble that cost-control measures would be effective in the long-run was a gamble.

And the very sharp Jon Cohn agrees with me:

So when I am confronted with something like this from Reihan Salam:

I wonder: Was Reihan simply not paying attention back in 2009-2010? Was he paying attention and is he now pretending he wasn’t?

I think that a tax is something that collects revenue to be used for programs, and a mandate–even a play-or-pay mandate–is something that shapes behavior. Mandates with fines for violation collect some revenue. Taxes also shape behavior. It is, however, useful to distinguish between them. ObamaCare’s individual mandate–or tax–is intended to shape behavior, not to raise revenue to fund other programs. Whether or not CBO were to score it as a mandate, it is a mandate. And CBO’s restriction of under what circumstances it would classify this mandate as a mandate was not terribly helpful to the policy-making process.

But the thing that makes me believe that it is not yet possible to have any sort of constructive dialogue with Reihan Salam is his claim:

[Gruber’s] enthusiasm for Obamacare borders on the absurd–he even wrote a graphic novel touting its virtues…

Once again: If Salam had been paying attention he would know that Gruber’s enthusiasm for ObamaCare is and always has been measured: supportive, but critically supportive rather than absurdly enthusiastic. If Salam has not been paying attention, why is he writing?

Not to pick on Mr. David Rennie especially–simply this piece of his struck me as very characteristic of a great deal of what I read in the Economist these days (outside its http://economist.com/freeexchange). But: