Category: Equitablog

Jens H.E. Christensen and Simon Kwan: Assessing Expectations of Monetary Policy: “An ongoing concern has been that the public might misconstrue the Fed’s forward guidance…

…about future monetary policy and underappreciate the extent to which short-term interest rates may vary with future news about the economy. Evidence based on surveys, market expectations, and model estimates show that the public seems to expect a more accommodative policy than Federal Open Market Committee participants. The public also may be less uncertain about these forecasts than policymakers.”

Marika Cabral, Michael Geruso, and Neale Mahoney: Does Privatized Health Insurance Benefit Patients or Producers? Evidence from Medicare Advantage: “The debate over privatizing Medicare…

…stems from a fundamental disagreement about whether privatization would primarily generate consumer surplus for individuals or producer surplus for insurance companies and health care providers. This paper investigates this question by studying an existing form of privatized Medicare called Medicare Advantage (MA). Using difference-in-differences variation brought about by payment floors established by the 2000 Benefits Improvement and Protection Act, we find that for each dollar in increased capitation payments, MA insurers reduced premiums to individuals by 45 cents and increased the actuarial value of benefits by 8 cents. Using administrative data on the near-universe of Medicare beneficiaries, we show that advantageous selection into MA cannot explain this incomplete pass-through. Instead, our evidence suggests that insurer market power is an important determinant of the division of surplus, with premium pass-through rates of 13% in the least competitive markets and 74% in the markets with the most competition.

**Walter Frick: If Your Kids Get Free Health Care, You’re More Likely to Start a Company: “Starting a business is risky enough in the best of circumstances…

…Most new ventures fail, and the prospect of forgoing a salary is enough to keep many would-be entrepreneurs from taking the plunge. But think about how much harder it would be if your child had a health condition, and you couldn’t get her insurance if you struck out on your own. That’s less of a problem in the U.S. than it was a few years ago, thanks to Obamacare, but until recently it was a very real conundrum…. Gareth Olds of Harvard Business School… analyzed Census data from before and after the passage of the Children’s Health Insurance Program in the U.S…. The self-employment rate for CHIP recipients increased from just under 15% of those eligible to over 18%. That amounts to an a 23% increase. The rate of ownership of incorporated businesses–a better proxy for sustainable, growth entrepreneurship–increased even more dramatically, from 4.3% to 5.8%, an increase of 31%…. The basic intuition behind his methods is that a family just above the CHIP cutoff isn’t all that different from a family just below it…

Jonathan Chait: Why the Worst Governments in America Are Big Small Local Governments: “Police militarization bore only the faintest responsibility for the tragedy in Ferguson….

…Old-fashioned policing tools were all the Ferguson police needed to engage in years of discriminatory treatment, to murder Michael Brown, and to rough up journalists covering the ensuing protests…. Ferguson has exposed a genuine opening for thinking about public life in a way that cuts across traditional ideological lines. The problem is what you might call Big Small Government…. Ferguson… is an Orwellian monstrosity. Its racially-biased Police Department is the enforcement wing of a predatory system of government described in scathing detail in a recent report by ArchCity Defenders… an instrument of fiscal (in additional to social) domination. Court fines account for a fifth of the city’s revenue. Police officers disproportionately search black drivers…. The city issues three warrants per household, and its draconian justice system appears designed to bleed its victims. The report notes, ‘A Ferguson court employee reported that the bench routinely starts hearing cases 30 minutes before the appointed time and then locks the doors to the building as early as five minutes after the official hour, a practice that could easily lead a defendant arriving even slightly late to receive an additional charge for failure to appear.’…

There are not many people who find their freedom so unjustly impaired by the government in Washington as the people of Ferguson are by their local government…. Big Small Government is all around us. We simply haven’t trained our minds to notice it… both right and left have exhibited forms of this mental block…. Why do coastal states lack affordable housing? Because regulations prevent dense construction…. Here is a genuine case of onerous regulation with dire economic consequences…. Or consider occupational licensing. Some 29 percent of American workers need a state-issued license in order to legally do their job…. Income inequality isn’t just about low taxes for the rich and generous compensation for executives; it’s also about the difficulty working-class Americans have getting a job as a barber or a dental hygienist. These regulations don’t exist because of a popular outcry from voters terrified that the person they hire to help them pick out new drapes may lack formal training for the job. They exist because they serve the narrow interests of tradesmen…

On Twitter:

• https://twitter.com/delong/status/508000245205450752 .@djsziff agreed: Toobin shd hv wren: “fed exch Nvalid §1311 exchange & cannot prvd sbsds” & not “fed exch Nvalid”. Big deal? Not really…
• §1311 says the state establishes the exchange. §1321 says that if the state doesn’t then the federal government establishes
• a §1311 exchange–“establish… such exchange” it says. Now along comes Jonathan Adler to complain that even though §1321
• empowers and commands the federal government to establish a §1311 exchange, it is so crystal clear and obvious that
• established exchanges are not §1311 exchanges as to pass the Chevron test and make insurance buyers ineligible for
• subsidies. And U say Toobin has problems understanding the ACA? Seems to me ur priorities R misplaced. Badly so… .@djsziff (5/5)

Must- and Shall-Reads:

• Noah Smith: Macroeconomics Gets Sucked Into Dark Corners
• Tim Harford: Why inflation remains best way to avoid stagnation
• Daniel Drezner: Has Politico Hit Peak Strawman?
• Eric Wemple: 7 problems with Politico Magazine’s [Michael Hirsh’s] hit piece on Glenn Greenwald

1. Michael Strain: Conservatives, wake up: The tax code is not your biggest problem: “Our health-care system is in need of serious reforms. The Affordable Care Act is an ugly package filled with unintended consequences. One of those consequences is a significantly smaller labor force. It should be repealed and replaced with a conservative alternative. And health-care costs are projected to put Medicare and Medicaid spending on an unsustainable and destructive path, and are putting downward pressure on wages and salaries. I would make progress with conservative health-care reforms before worrying about tax reform. It’s a bigger economic problem today–and it’s a problem that will only grow in importance over the coming years…”

2. Michael Hiltzik: That predicted double-digit rise in Obamacare premiums? Not happening: Another stake in the heart of a popular anti-Obamacare claim has arrived from the Kaiser Family Foundation, which compiled the projected premium changes for 2015 in 15 states and the District of Columbia. Its finding is that premiums for the lowest-cost, most popular individual health plans will be dropping for next year, by a nationwide average of 0.8%…. ‘Now that insurers have been able to see what their competitors are charging… they are making strategic adjustments in how they price…’ [said the] Kaiser Family Foundation, explaining why healthcare premiums are holding steady…. That’s just one of several indicators recently released that demonstrate that the Affordable Care Act is working as planned and that the parade of horribles so deeply relished by its opponents hasn’t materialized.”

3. Peter Diamond: Video: Unemployment “Debates about higher structural unemployment occur when unemployment has stayed high. With monthly publication of the US Beveridge curve (the relationship between the unemployment and vacancy rates), the recent debate has focused on the shift in the Beveridge curve and whether the shift will be lasting long enough to move the full-employment point. The curve appears stable through the NBER identified business cycle through in June 2009 or possibly the month of the maximal unemployment rate in October 2009. This shift in the Beveridge curve, with the economy experiencing a higher level of unemployment than before for the same level of the vacancy rate, suggests a deterioration in the matching/hiring process in the economy. It is tempting to interpret this decline as a structural change in the way that the labor market works and thus assume that it is orthogonal to changes in aggregate demand. Indeed, an assumption that a shift in the curve is structural has been a staple of the academic literature since at least 1958. This interpretation has an obvious policy implication: however useful aggregate stabilization policies while unemployment is very high, they are likely to fail in lowering the unemployment rate all the way to the levels that prevailed before the recession, since the labor market is structurally less efficient than before in creating successful matches. This lecture reviews the theory underlying the Beveridge curve and US evidence on the ability to draw an inference of structural change from its shift or a shift in the hiring (matching) function.” | Mark Thoma: Economist’s View: A Conversation with Peter Diamond

4. Bryan Caplan: What Every High School Junior Should Know About Going to College: “College is a good deal for good students, a mediocre deal for mediocre students, and a poor deal for poor students. Once in a long while, a poor student morphs into good student. But expecting any particular poor student–yourself included–to morph into a good student is wishful thinking. How do you know if you’re a good, mediocre, or poor student? Look at your past academic performance – your grades and standardized test scores…. The main reason why college is a good deal for good students, a mediocre deal for mediocre students, and a poor deal for poor students: good students usually finish college, mediocre students usually don’t, and poor students almost never do. And most of the payoff for college comes from finishing…. When you decide whether to go to college, you should consider the college experience as well as the career benefits…. A good rule of thumb: If your studies bore you in high school, they’ll probably bore you in college too…. Suppose your 150-pound friend dreams of being a professional football player. Would a true friend urge him on? No, he’d warn his mid-weight friend that he is astronomically unlikely to succeed…. I’m trying to play the same role for mediocre and poor students who expect to succeed in college. Please don’t get mad at me. I am only a messenger…”

5. Rajiv Sethi: The CORE Project “Back in October 2012 I got an unexpected email from Wendy Carlin…. ‘I think that a curriculum that places before students the best of the current state of economic knowledge addressed to the pressing problems of concern… could succeed.’ I attended the meeting, and joined a group that would swell to incorporate more than two dozen economists spread across four continents… with funding from the Institute of New Economic Thinking, we began to assemble a set of teaching materials under the banner of Curriculum Open-Access Resources in Economics (CORE). A beta version of the resulting e-book, simply called The Economy, is now available free of charge worldwide to anyone interested in using it…. So if you’re teaching an introductory economics course, or enrolled in one, or just interested in the material, just register here for complete access without charge. We will eventually set up instructor diaries to consolidate feedback, and welcome suggestions for improvement. This is just the start of a long but hopefully significant and transformative process of creative destruction.” 

6. Robert Waldmann: “This post endured the test of 5 years, that is 35 dog years, or 563 @intenetyears. I think the key word is ‘taboo’. Yes, exactly: ‘The “lowbrow” theories of 1920-1980 from Fisher, Wicksell, Keynes, and Hicks through Metzler, Tobin, and Friedman–are taboo. They would be demonstrating to their peers that they were not serious highbrow economists if they consulted them.’ That’s the thing about taboos–you can’t violate them just a little, you aren’t allowed to mention the possibility of considering maybe violating them some day. Other slighly less useful words are ‘orthodoxy’, ‘doctrine’, ‘heresy’, and ‘betrayal’. You can’t expect an Eastern Orthodox theologian to consider the possibility that the holy spirit proceeds mostly from the father but maybe 1 or 2% of it proceeds from the Son (in any case at least when the Federal Funds rate is under 0.25%). Similarly you can’t expect a Midwestern Orthodox Macroeconomist to consider the possibility that Keynes might have said something useful on some Easter Sunday.”

Should Be Aware of:

• Zephyr Teachout: Corruption in America: From Benjamin Franklin’s Snuff Box to Citizens United
• The Antidote: How Staten Island Is Fighting a Raging Heroin and Prescription-Pill Epidemic

1. Tim Harford: Here today, gone tomorrow: “Don’t draw up your task list in the morning–do it the evening before, when you will have a more distant perspective…. Strange things happen to us when tomorrow turns into today. Tomorrow we’ll eat fruit rather than candy bars. Tomorrow we’ll watch Krzysztof Kieślowski’s Blue rather than Sleepless in Seattle. And yet curiously when tomorrow arrives, we eat chocolate and watch romcoms. Our preferences flip…. Economists give this tendency the charmless name of hyperbolic discounting…. What are the solutions? One possibility is to schedule tasks ahead of time in the calendar…. Putting long-term priorities firmly in the calendar helps deal with the hyperbolic discounting problem…. Ariely is part of a team producing a new smartphone app, Timeful, which aims to deliver the diary-stuffing approach more intelligently…. Whenever a new invitation arrives, ask yourself not, ‘should I accept the invitation in March?’ but, ‘would I accept the invitation if it was for this week?’ The fundamental insight of hyperbolic discounting is that while tomorrow always looks different, eventually tomorrow will be today…”

2. Scott Lemieux: Republicans are still trying to destroy Obamacare, and they’re still losing: “Conservatives want to protect your right a totally avoidable death due to a lack of health insurance. It’s the principle of the thing…. ‘Today’s decision by the DC Circuit to grant en banc review of Halbig v. Burwell is unwise and unfortunate. It has the appearance of a political decision’, sniffed Michael Cannon of the conservative-libertarian Cato Institute. The chutzpah it takes for one of the architects of the case to accuse the judges who voted to re-hear it of being ‘political’ is like the Atlantic Ocean accusing the creek running behind your house of having too much water. But nothing will stop the Obamacare truthers–not logic, reason, legal rulings, common sense or human decency. Earlier this year, based on a hyper-literal reading of an isolated part of the Affordable Care Act, a two-judge panel from the court ruled that Congress did not intend to provide subsidies to participants in federal health insurance exchanges in order to make their insurance affordable–though they did so for state exchanges. Their argument–that Congress went through the trouble to create a federal backstop in case certain states didn’t establish exchanges while intentionally (but secretly) intending for the backstop to fail–is both absurd on its face and inconsistent with the understanding of literally everyone involved in passing the statute…. Unlike the bizarre ruling that conservatives loved, the decision to re-hear the case is legally unassailable…. It is unusual for the court to agree to a full review–but it’s also highly unusual for an unrepresentative panel to issue a widely-derided ruling that would have massive policy consequences. If this Obamacare case isn’t important enough to merit a re-hearing, what would be?… Obamacare truthers are reviving an idiotic Republican talking point from last year. There is now a Democratic majority on the court, Cato’s Cannon charges, because ‘President Obama and Senate Democrats then “packed” the D.C. Circuit with their judicial nominees’–an absurd characterization of events. The supposed ‘court-packing’ involved Obama nominating people to fill existing vacancies, after which they were approved by a majority of the Senate. What dastardly lawlessness!… This contempt for democracy saturates the entire legal campaign against the Affordable Care Act. A series of ad hoc legal arguments, each more absurd than the last, are raised in order to sabotage or nullify legislation passed by the people’s representatives that its political opponents have been unable to overturn through the electoral process…”

3. Thoreau: Hype. Let’s talk about hype. What is it? How do we parody it? That’s the subject of this TED talk: “I am fond of the famous saying by Gen. Kurt von Hammerstein, who considered clever and lazy people to be suited for the highest command, and stupid and diligent people to be the most dangerous. I’d like to add another variable: Susceptibility to hype, motivational talks, TED talks, etc….I’ve come across lamentably many people who are smart in many regards but fall for all sorts of fads, gimmicks, TED talks, etc.  I don’t get it.  So, let me expand the taxonomy…. Stupid and lazy people… can be used for suitable tasks. If they are susceptible to hype, they are somewhat easier to motivate. If they are not susceptible to hype, well, there are still ways to make them do what is needed. Diligent and stupid people are dangerous…. If they aren’t susceptible to hype, you have one less lever to influence them with. If they are susceptible to hype, they will fall for all sorts of things. Either way, it’s best to contain them. Diligent and clever people are useful. If they fall for hype, they should be put in charge of implementing something that a superior has indicated enthusiasm for. If they are skeptical of hype, they should be retained as trusted aides who will vet proposals and reports. Clever and lazy people who fall for hype are incredibly dangerous…. Clever and lazy people who are immune to hype are the ones to put in charge, because they will make very good decisions, use resources wisely, and see through most of the bullshit.”

4. Jeff Sachs: The Wall Street Journal Parade of Climate Lies: “That Rupert Murdoch governs over a criminal media empire has been made clear enough in the UK courts in recent years. That the Wall Street Journal op-ed pages, the latest victim of Murdoch’s lawless greed, are little more than naked propaganda is perhaps less appreciated. The Journal runs one absurd op-ed after another purporting to unmask climate change science, but only succeeds in unmasking the crudeness and ignorance of Murdoch’s henchmen. Yesterday’s (September 5) op-ed by Matt Ridley is a case in point…. Ridley quotes a sentence fragment from the press release suggesting that roughly half of the global warming in the last three decades of the past century (1970-2000) was due to global warming and half to a natural Atlantic Ocean cycle. He then states that ‘the man-made warming of the past 20 years has been so feeble that a shifting current in one ocean was enough to wipe it out altogether’…. The total warming is distributed between the land and ocean surface on the one hand and the ocean deep water on the other. The total rise of ocean heat content has continued unabated, while the proportion of heat absorbed at the surface and in the deeper ocean varies over time…. ccording to the paper, the period of the late 20th century was a period in which the surface was warmed relative to the deeper ocean. The period since 2000 is the opposite, with more warming of the deeper ocean…. If the surface warming is somewhat less in recent years than in the last part of the 20th century, is that reason for complacency? Hardly. The warming is continuing, and the consequences of our current trajectory will be devastating…. As Chen and Tung conclude in their Science paper: ‘When the internal variability [of the ocean] that is responsible for the current hiatus [in warming] switches sign, as it inevitably will, another episode of accelerated global warming should ensue’.”

Noah Smith: Job Shortage or Stagnation Vacation?: “Are Americans working less because the government is paying them not to work?…

…A large number of people seem to think this…. Mitt Romney’s infamous ’47 percent’ speech…. Casey Mulligan…. Kurt Mitman…. Jordan Weissmann…. But… if government programs are paying people not to work, then that should put upward pressure on real wages…. But… that’s not what we see happening…. Economics 101 says that when the price of something and the quantity produced both fall, demand, not supply, has fallen. In America, the price of labor and the quantity of labor have both fallen and stayed low since 2009. That is a hint that the government’s welfare programs are having only a minimal impact…. So what is it? Well, I don’t think anyone really knows why these long stagnations happen. I suspect that it has something to do with the aftermath of financial crises, but the link is not yet well understood.

I, by contrast, think that we do understand very well why it is that stagnations continue once the economy has gotten wedged.

Right now people in the aggregate are happy spending more or less their incomes, and individual managers think that if they hired more people and produced more stuff they would be unable to sell it at a good enough price to increase their profits. You might think that since there are a lot of unemployed workers they would offer to take the place of employee workers at lower wages, and after that replacement took place the profit-and-loss calculus would be different and so firms would hire more people and produce more stuff, but the labor market does not work that way. You might think that, since there are a lot of unemployed workers and no threat of inflation, central banks would lower interest rates and that would give an incentive for businesses to start spending more than their incomes by boosting investment in new capital and that would start a virtuous cycle going.

Indeed, that is the way a stagnation usually gets fixed.

But right now central banks have lowered short-term interest rates as far as they can go: they cannot lower them any further to boost spending. And so far central banks have proved unable or unwilling to promise to keep interest rates low enough for long enough to materially alter the investment spending calculus. Governments have proven unwilling to take up the slack with their own spending. And raising financing for residential construction or small and medium enterprise expansion remains very difficult because of the clogged credit channel.

So where is the mystery? What don’t you understand?

The mystery is, rather, that there are people who expect a stagnation at the zero interest rate lower bound with fiscal policy dominated by austerity and 8 clogged credit channel to be short…

Michael Strain: Conservatives, wake up: The tax code is not your biggest problem: “There are several problems facing the country today…

…more urgent than the tax code…. [1] The long-term unemployed…. I would employ a suite of policies to help get the long-term unemployed back to work before reforming the tax code. Long-term unemployment is a national emergency that belongs at the front of the line…. [2] Men of prime working age–too old to be in school and too young to be retired–are in flight from the labor force. The average labor force participation rate of prime-aged men in 1980 was 94.3 percent. The rate last month? Just 88 percent…. Conservative solutions to reform our schools… increase the generosity of the earned income tax credit (EITC) for childless workers…. Such policies are… more important to society and the economy today than tax reform.

[3] Our health-care system is in need of serious reforms. The Affordable Care Act is an ugly package…. It should be repealed and replaced with a conservative alternative. And health-care costs are projected to put Medicare and Medicaid spending on an unsustainable and destructive path, and are putting downward pressure on wages and salaries. I would make progress with conservative health-care reforms before worrying about tax reform…

Would it be uncivil for me to point out that there is not a word about what “conservative health-care reforms” might be? Would it be uncivil to point out that there is not a word about what the conservative “suite of policies to help the long-term unemployed get back to work” might be? Would it be uncivil to point out that there are no words about which “conservative… reform[s of] our schools” he advocates? (There are thirteen words about a real policy–“increase the generosity of the earned income tax credit (EITC) for childless workers”–but would it be uncivil to point out that that is not likely to have a great deal of purchase on the very real problem of “peak male”?

Back in the 1950s through the 1970s Michael Strain’s predecessors had a technocratic message to deliver: that in the wake of victory over the Nazis, Imperial Japan, and the Great Depression the center and the left believed that government command-and-control and regulatory mandates could accomplish more than they in fact could. And back then conservatives were willing to hear that technocratic message. Would it be uncivil to point out that it looks to me like Michael Strain and most of his cohorts fear that today’s conservatives are unreceptive to his technocratic message–so much so that they dare only to whisper it softly?

Two things that came across the transom this weekend:

First, Elizabeth Stoker Buenig writing on Civility [and] Outrage after being attacked for writing that it is morally questionable to seek fame and fortune by kicking down against those unfortunate enough not to have been born to the right parents or who have been unlucky in other ways.

I have always thought that there are three major sins of the intellect:

1. Cruelty–that is, kicking down in the hope that it will make the lives of the unlucky worse for, relative to the unlucky, contra John Donne the writer is indeed an island.

2. Laziness–that is, failing to inform oneself about the issues, and failing to think through the problems: failing to use your intelligence to any purpose.

3. Stubbornness–that is, failing to properly update one’s beliefs when new evidence comes in, and turning instead to elaborating reasons for why the new evidence doesn’t mean what it means: using one’s intelligence for a malign purpose to keep yourself from properly marking one’s beliefs to market.

I’ve always thought that when you cannot say that someone is being cruel, or lazy, or stubborn, but only “uncivil”–well, then you got nothing. And if people are being cruel, or lazy, or stubborn? Then it is a misdirection of effort to point out that they are uncivil. And that it is never uncivil to point out that people are being cruel, or lazy, or stubborn. Or perhaps it is better put as Adam Smith put it: that often “mercy to the guilty is cruelty to the innocent”.

And just as I read this the American Enterprise Institute’s Michael Strain crosses my desk:

Michael Strain: Conservatives, wake up: The tax code is not your biggest problem: “Our health-care system is in need of serious reforms…

…The Affordable Care Act is an ugly package filled with unintended consequences. One of those consequences is a significantly smaller labor force. It should be repealed and replaced with a conservative alternative. And health-care costs are projected to put Medicare and Medicaid spending on an unsustainable and destructive path, and are putting downward pressure on wages and salaries. I would make progress with conservative health-care reforms before worrying about tax reform. It’s a bigger economic problem today–and it’s a problem that will only grow in importance over the coming years…

Michael Hiltzik: That predicted double-digit rise in Obamacare premiums? Not happening: Another stake in the heart of a popular anti-Obamacare claim…

…has arrived from the Kaiser Family Foundation, which compiled the projected premium changes for 2015 in 15 states and the District of Columbia. Its finding is that premiums for the lowest-cost, most popular individual health plans will be dropping for next year, by a nationwide average of 0.8%…. ‘Now that insurers have been able to see what their competitors are charging… they are making strategic adjustments in how they price…’ [said the] Kaiser Family Foundation, explaining why healthcare premiums are holding steady…. That’s just one of several indicators recently released that demonstrate that the Affordable Care Act is working as planned and that the parade of horribles so deeply relished by its opponents hasn’t materialized…

Peter Diamond: Video: Unemployment “Debates about higher structural unemployment…

…occur when unemployment has stayed high. With monthly publication of the US Beveridge curve (the relationship between the unemployment and vacancy rates), the recent debate has focused on the shift in the Beveridge curve and whether the shift will be lasting long enough to move the full-employment point. The curve appears stable through the NBER identified business cycle through in June 2009 or possibly the month of the maximal unemployment rate in October 2009. This shift in the Beveridge curve, with the economy experiencing a higher level of unemployment than before for the same level of the vacancy rate, suggests a deterioration in the matching/hiring process in the economy. It is tempting to interpret this decline as a structural change in the way that the labor market works and thus assume that it is orthogonal to changes in aggregate demand. Indeed, an assumption that a shift in the curve is structural has been a staple of the academic literature since at least 1958. This interpretation has an obvious policy implication: however useful aggregate stabilization policies while unemployment is very high, they are likely to fail in lowering the unemployment rate all the way to the levels that prevailed before the recession, since the labor market is structurally less efficient than before in creating successful matches. This lecture reviews the theory underlying the Beveridge curve and US evidence on the ability to draw an inference of structural change from its shift or a shift in the hiring (matching) function. | Mark Thoma: Economist’s View: A Conversation with Peter Diamond