Category: Equitablog

Must-Read: Very important, I believe:

Chris Dillow: Cronyism, & the demand for redistribution: “Is actually-existing capitalism a fair or a rigged game?… http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2017/07/cronyism-the-demand-for-redistribution.html

…The answer matters a lot for attitudes towards redistribution, as some recent experiments by Matthias Sutter and colleagues show. They got people to choose between a safe investment and a risky one. After the pay-off to the risky investment was seen, they asked third parties whether they wanted to redistribute. When the pay-off to the risky asset was determined fairly–by the toss of a coin–few people were complete egalitarians. However, they then tweaked the experiment so that subjects who chose the risky asset could toss the coin themselves and report the result without anybody checking it. In this experiment, the number of third parties who were egalitarians tripled. Even the suspicion of cheating–let alone the reality–creates a big increase in demand for equality….

Luigi Zingales argues (pdf) that corporate and political power are becoming increasingly intertwined, and this is a threat to the free market, prosperity and democracy. Graeme Archer calls on the government to fight the “crony corporatism” which has seen bosses’ pay soar without any increase in economic efficiency. What we have here are mainstream and rightist writers acknowledging that the game is rigged, at least partly. Rhetoric about capitalism is changing. Even outside the left, the rich are no longer seen (only) as talented public beneficiaries whose rewards are the product of free markets, but also as thieves who exploit power for their own ends. Sutter’s experiments suggest this should cause a big rise in demand for redistribution. We don’t need to prove that theft and rent-seeking are widespread; the mere suspicion of it creates many more egalitarians. But there’s a quirk here…. Professor Sutter and colleagues infer from this that the suspicion of cheating creates political polarization. I draw another inference. It’s that we need much more than redistributive taxation to tackle cronyism. We need to change institutions to prevent rent-seeking. Whether Archer’s relatively mild suggestions–more transparency and shareholder power–are sufficient is something I very much doubt.

Should-Read: “Unconstitutional but need to be made in a legal way…” is a very interesting category of congressional action…

Let us be very clear: the exchanges in blue states are in much better shape, and state governments can do a lot to shore them up and are willing to step in if the federal government drops the ball. It’s red states where the insurance exchanges are in trouble and where state governments lack the technocratic knowledge and the free cash flow needed:

Cameron Joseph and Tierney Sneed: After Obamacare Repeal Collapse, GOP Weighs Whether To Help State Markets: “Most Republicans have been happy to watch some state-level individual health insurance exchanges sputter… http://talkingpointsmemo.com/dc/after-obamacare-repeal-collapse-gop-weighs-whether-to-help-state-health-exchange-markets

…using those struggles as their main talking point for how Obamacare is failing under its own weight as the Trump administration exacerbated some of the exchanges’ problems. They assumed they’d be able to execute a broader policy change…. But after admitting defeat (at least for now) on a broad overhaul of the law, Republicans are beginning to come to grips with what to do going forward. “We’ve got to do something. The repeal effort’s dead so I think the next logical thing is we have to try to reach out and figure out where we can make health care better,” [said] Rep. Adam Kinzinger (R-IL)…. Democrats are hopeful that their GOP brethren will be ready to move forward and craft a plan to stabilize the exchanges in the states that have been struggling…. But it’s unclear if Republicans are ready to move on and help fix the very real problems of some state-based exchanges in places like Iowa and Missouri where parts of states are left with just one, or even zero, health care options. President Trump, the man with by far the most power over that issue, has indicated he’s happy to let the exchanges continue to struggle—and threatened over the weekend to intentionally torpedo them….

Republicans… most believe that pulling the CSR payments would be policy malpractice, intentionally hurting Americans to make a political point, and carry big political risk. “I have said since December that while the CSR payments are not constitutional they need to be made in a legal way so that the market does not collapse. I have not changed my mind on that. We have to put the consumer first,” [said] House Energy and Commerce Committee Chairman Greg Walden (R-OR)….

There are some positive signs of bipartisan efforts, mostly on the Senate side. The chairman and ranking member of the Senate committee tasked with dealing with the largest chunks of healthcare, Sens. Lamar Alexander (R-TN) and Patty Murray (D-WA) have expressed interest…. “I voted to take the next step toward what I believed was our best opportunity to repeal and replace Obamacare. The Senate’s failure to do this leaves an urgent problem that I am committed to addressing: Tennessee’s state insurance commissioner says our individual insurance market is very near collapse,” Alexander said in a statement after the vote failed. But even those Republicans who say they want to work in good faith… hint they’d been so focused on repealing Obamacare, they weren’t prepared with plans if it stood…

Should-Read: Andy Slavitt: @ASlavitt on Twitter: “Trump plans to sabotage the ACA this week… https://twitter.com/ASlavitt/status/891722458855866369

…If everyone handles it right, it won’t work. Trump’s single greatest bullet in his gun to disrupt ACA is to not make CSR payments…. Trump has been threatening it & I am hearing he will announce this Tuesday he won’t pay. There is a well documented record that this is political & violates the law. Well documented by Trump that is. But more importantly…

States & insurers by refilling can make this a neutral 2 positive 4 consumers & the only one to pay the price of this sabotage- Trump…

Dianna Welch and Kurt Giesa: “Payers will respond to CSR defunding by significantly raising rates on their exchange silver plan premiums…

…Because subsidies in 2018 will be based on the cost of the second lowest-cost silver plan, any increase in those premium rates will cause subsidies to increase in parallel…. Subsidies could increase to the extent that they would actually exceed the cost of a bronze plan for many lower-income enrollees. A substantial portion of the nearly 7 million marketplace enrollees eligible for CSR could receive a bronze-level plan for no cost, or upgrade to a gold-level plan at very low premiums…

Must-Read: The smart and honest Simon Johnson likes the Trumpists’ and Cogan, Hubbard, Taylor, and Warsh’s 3%/year real national product fake forecasts even less than I do:

Simon Johnson: Trump’s Growth Charade by Simon Johnson – Project Syndicate: “Officials in President Donald Trump’s administration frequently talk about getting annual economic growth in the United States back above 3%… https://www.project-syndicate.org/commentary/trump-administration-growth-assumption-by-simon-johnson-2017-07

…Their proposed budget actually assumes that they will succeed…. Unfortunately, left to its own devices, the economy will most likely continue to sputter. And the policies that Trump’s Republican Party has proposed–for health care, taxes, and deregulation–will not make much difference. The assumption of higher growth is more of an accounting smokescreen for tax cuts than anything else. If administration officials acknowledge that a 3% annual rate is not feasible, they would need to face the reality that their forecasts for tax revenues are too high, and that their proposed tax cuts, if enacted, would dramatically increase the budget deficit and the national debt.

The US economy used to grow at more than 3% per year; in fact, this was the norm in the second half of the twentieth century. Since then, however, the US has been forced to confront three major constraints…. The US population is aging… has reduced US potential annual growth by perhaps as much as half a percentage point…. Lurking in the background are potential policies that would restrict legal immigration…. The slowing rate of productivity growth…. The 2008 financial crisis…. Deregulation in the 1990s and early 2000s… leading to slightly higher growth for a while–and then to a massive crash…. Relaxing limits on leverage…. Any boom generated in this way is likely to end badly….

Assuming 3% growth is, to put it generously, wishful thinking. Worse, it is deeply misleading–and potentially dangerous…

Should-Read: Avik Roy told a lot of lies in his vain attempt to get BCRA passed.

Now here he is calling for the corruption of the Congressional Budget Office.

Every single former Director of the CBO regards its independence as an extremely valuable national treasure. And Roy’s claim that the CBO was in the pocket of the Democrats is hogwash. In almost the next breath after saying that Democrats had “a deliberate strategy to stack the CBO”, he admits that President Obama “opposed the individual mandate”—if there was an alternative strategy that would have gotten coverage. CBO judged that there wasn’t—that Obama’s preferred bill would not work.

The difference between CBO scores of the Democratic and Republican health care bills is not because the CBO is stacked in favor of Democrats, it is because the Democrats were willing to listen to the CBO and craft bills that the CBO judged were likely to work, while the Republicans were unwilling to listen to the CBO and so crafted bills that the CBO judged were unlikely to work:

Avik Roy: An Autopsy of the GOP Effort to Repeal and Replace Obamacare: “Moderate Republican senators, often representing purple or blue states, were reluctant both philosophically and politically to endorse legislation that increased the number of Americans without health insurance… http://www.nationalreview.com/corner/449943/autopsy-gop-effort-repeal-and-replace-obamacare

…Conservative Republican senators focused on the commitment they (and most of the moderates) had made to repeal and replace Obamacare, and more broadly, their commitment to limited government…. Democrats passed Obamacare… by uniting their ideological and pragmatic wings…. When Democrats retook Congress in 2006, they appointed Peter Orszag to head the CBO, as part of a deliberate strategy to stack the CBO in favor of their health-care agenda. Orszag proceeded to build out the entire health policy wing of the CBO—representing dozens of staffers—with like-minded individuals…. The Affordable Care Act reflects the CBO’s worldview. While Senator Obama opposed the individual mandate, the CBO believed it would add 16 million covered lives to the ACA’s ledger….

Compare and contrast that to the GOP’s effort. When Republicans had the opportunity to appoint a CBO director in 2015, they chose not to hire someone with deep health-care expertise… and instead hired… a labor economist. There was no comparable strategy, either by Hall or by Congress, to rebalance the CBO’s center-left tilt with individuals more knowledgeable about how health insurance markets actually work. Hence… the CBO was poised to make any GOP bill look bad…

Should-Read: Craig Garthwaite: Why replacing Obamacare is so hard: It’s fundamentally conservative: “As a life-long Republican… I’ve come to an answer that will be hard for many conservatives to swallow… https://www.washingtonpost.com/opinions/why-replacing-obamacare-is-so-hard-its-fundamentally-conservative/2017/07/10/c5d64634-6351-11e7-84a1-a26b75ad39fe_story.html

…Passing an Obamacare replacement is difficult because the existing system is fundamentally a collection of moderately conservative policies…. There simply isn’t much room to the political right of Obamacare for a policy that covers as many people with high-quality insurance. Furthermore, many have realized that there isn’t much political will for a bill that covers meaningfully fewer people or that places low-income individuals in insurance plans with cost-sharing elements they can’t afford….

Before I am drummed out of the party, it’s important that we consider our history…. Even Ronald Reagan saw a role for the government to provide quality health insurance for those who could not otherwise afford access…. The Republican Party was… a party that at its core supported a limited, well-run and efficient government. This fact can be seen in the structure of the social insurance policies we’ve historically supported… welfare reform and the earned-income tax credit… the expanded use of government contractors and outsourcing rather than an ever-growing leviathan… Medicare Part D, supporting Medicare Advantage and advocating premium support in Medicare. Each of these policies involves government intervention where the private market failed, but in a way that focuses on the diligent and effective use of market-based incentives and, where possible, private firms.

This history makes it clear: Obamacare is broadly an extension of traditional Republican beliefs…. Private firms provide health insurance in a free, but appropriately regulated, market…. Economics simply does not allow us to deny the underlying fact that these stable health insurance markets require regulatory guardrails. Furthermore, these Obamacare regulations all work together…. The regulation guaranteeing insurance access for those with preexisting conditions… [is] popular… [but] comes with the necessity of… market interventions such as the individual mandate and sufficiently generous tax subsidies to prevent a death spiral….

Unfortunately, these marketplace realities run afoul of the Republican Party’s newly developed preternatural love for completely unfettered markets—a love that is simply incompatible with reality and our party’s history. Quite simply, addressing adverse selection in health policy doesn’t mean you are surrendering to the long arm of government intervention any more than having the government enforce property rights or contracts is the first step on the slow march to socialism. It simply means we recognize that at times the conditions for healthy markets are missing and must be provided….

The inability to solve the big problems facing our great nation will be the beginning of the end of the [Republican] party.

Should-Read: Antonio Fatas seems annoyed with Greg Mankiw. I think I understand where Antonio is coming from: one has a moral obligation, I think, not just to say “health care is a complicated issue”, but to go on and say what kinds of “regulatory relief” and what kind of “expanded government role” you believe would do more good than harm—and also (we are still looking at you, Marty) not to misreport and misconstrue the solid empirical literature, and also (here we are looking at you, Greg) to say more than that the issues are “hotly debated”:

Antonio Fatas: On Twitter: “Healthcare is complicated but Greg Mankiw should criticize policy proposals that are incoherent or just lie about their benefits…” https://twitter.com/AntonioFatas/status/890979381719511044

Greg Mankiw: Why Health Care Policy Is So Hard: “‘Nobody knew that health care could be so complicated’. President Trump said that in February… https://www.nytimes.com/2017/07/28/upshot/why-health-care-policy-is-so-hard.html

…Anyone who has spent some time thinking about the issue sees its complexity. With the collapse of the Senate health care bills this week, the president has certainly been reminded of it. But Mr. Trump’s epiphany raises some questions: Why is health care so complicated? How does it differ from most of the other goods and services that the economy produces? What makes health policy so vexing?…

The magic of the free market sometimes fails us when it comes to health care. There are several reasons. Externalities abound… vaccines, for instance… medical research…. Consumers often don’t know what they need… and sometimes are not in a position to make good decisions…. Health insurance… means that consumers no longer pay for most of their health care out of pocket…. Insured consumers tend to overconsume…. To mitigate this problem, insurers have co-pays, deductibles and rules limiting access to services. But co-pays and deductibles reduce the ability of insurance to pool risk, and access rules can create conflicts between insurers and their customers. Insurance markets suffer from adverse selection… the death spiral… the insurance market may disappear….

The best way to navigate the problems of the health care marketplace is hotly debated. The political left wants a stronger government role, and the political right wants regulation to be less heavy-handed. But policy wonks of all stripes can agree that health policy is, and will always be, complicated.