Category: Equitablog

Should-Read: Diane Coyle: Economics in Transition: The End of Theory: “There has been a huge shift away from the reductionism of an older generation… to which Bookstaber has paid little attention… https://www.project-syndicate.org/onpoint/economics-in-transition-by-diane-coyle-2017-06

…His critique is partly valid…. Macroeconomic models in wide use before the 2008 crisis excluded financial institutions and relied on the fiction of “representative agents.” This is changing all too slowly. The field is full of normative terminology, about “optimal” outcomes, for instance, without ever analyzing the implied value judgments. Mainstream macroeconomists are unwilling to admit there is little hard science in what they do–a stance that, in the name of promoting economics in public opinion, has undermined the profession’s credibility. Bookstaber is also right to point out that much macroeconomic modeling ignores the fact that economic time series are non-ergodic…. But The End of Theory goes on to charge that economics has ignored behavioral psychology. In fact, behavioral economics is one of the most popular areas of the discipline now, among academics and students alike. Bookstaber also asserts that economists ignore the reality of complexity theory, network theory, and agent-based modeling. While these latter areas are not mainstream, not least because most established researchers have never learned the research techniques needed to apply these conceptual frameworks, they, too, are increasingly popular…

Should-Read: Larry Summers: Globalization Will Work If We Stop Catering To The Elite: “A wage subsidy works like this… http://www.huffingtonpost.com/entry/globalization-larry-summers_us_594b0440e4b0312cfb616164

…I earn $8 an hour and the government pays an extra $4 for every hour I work. If I earn $10 an hour, the government gives me $3 dollars. In other words, because it is based on my wage rate, it doesn’t distort my level of effort. It is more complicated to enforce, but more attractive. It is a better alternative to universal basic income where no level of effort is required. I think people want to work. There are all kinds of important work in our society to do―such as elderly care, child care, practicing preventive medicine―for which there is not a readily apparent business model. If we are going to employ everybody, we’re going to have to find ways of making sure that that work can get done.

Another important thing to understand about wages and costs in this context is how the world has changed. If we assume consumer prices at 100 in 1983, the consumer price for a TV in 2017 is much, much less because the technology has improved and made it much cheaper. But the cost of a year of college has skyrocketed―it is 600 today to compared to 100 in 1983. So, there has been a huge change in relative prices of those two goods. It is hard to believe in that context that we shouldn’t have more spending by the government to help pay for one―college costs―and not the other….

I don’t think more regulation of finance is the foremost issue today…. Before 2008, yes, we should have had more regulation. Is there a fundamental principle around redefining the financial sector as a public utility? I don’t think so…

Should-Read: Richard Peach and Charles Steindel: Low Productivity Growth: The Capital Formation Link: “Capital intensity… reflect[s] the effect of current and past physical investment on the growth of labor productivity… http://libertystreeteconomics.newyorkfed.org/2017/06/low-productivity-growth-the-capital-formation-link.html

…The 0.5 percent growth contribution for “capital intensity” estimated for the period from 2007 through 2016 is less than half that seen in the periods from 1995-2000 and 2000-2007. The slowdown can be largely attributed to the sluggishness in net investment…. There are surely many factors that have contributed to the pronounced slowdown of growth of labor productivity. Given the complex set of forces that affect productivity, projecting its medium-term trend is problematic. Still, data suggest capital formation has played a role and the odds of a rebound in productivity are reduced if the weakness in investment spending continues.

Must-Read: Nicholas Bagley: Crazy waivers: the Senate bill invites states to gut important health insurance rules: “The bill goes further to grease the wheels for waivers… https://www.vox.com/the-big-idea/2017/6/23/15862268/waivers-federalism-senate-bill-essential-benefits

…Under Obamacare, a state had to pass a law in support of the proposed waiver, which meant legislatures had to give their approval before the state could experiment with novel approaches to health insurance. The Senate bill would cut legislatures out of the equation. Governors, together with their insurance commissioners, could devise new health care plans on their own. (They would only have to “certify” that they have the authority to implement the plan—a low hurdle.) The federal government must then review the waiver request on an expedited basis. And once a waiver is granted, the Senate bill says that the federal government cannot terminate the waiver, no matter what. It is hard to overstate how unusual—even unique—this is. When the federal government offers money to states, it places conditions… to prevent state abuse of federal funds. The Senate bill… says that a waiver “may not be cancelled” before its expiration. If state officials blow the Obamacare money on cocaine and hookers, there’s apparently nothing the federal government can do about it. At the same time, the bill expands the duration of waivers from five years to eight years. The upshot, then, is that the next president won’t be able to renegotiate any waivers granted during the Trump administration, no matter how badly a given state might have abused its waiver…

Must-Read: David Anderson: Reading the BCRA CBO Score: “The Congressional Budget Office is due to release their score on the Senate’s BCRA bill at some point today. Here are a few things to remember as you read the score… https://www.balloon-juice.com/2017/06/26/reading-the-bcra-cbo-score/

…Look at the effects at 10 years and beyond: The bill is designed to push the Medicaid cut backs to the right hand side of the budget window and then accelerate those cuts compared to the AHCA. Senator Murphy (D-CT) has asked and received assurance that the CBO will score coverage losses past 10 years. I think that topline coverage losses will be a bit less from Medicaid in window but match AHCA within two years out of window.

Is the 6 month auto-denial period being scored?: This is the Senate Republican replacement of the individual mandate. It was not written into the bill released on Thursday. If CBO scores it. how do they score it against both the individual mandate and the 30% single year premium bump? The CBO thinks the individual mandate is reasonably effective at keeping healthier people in the pool, while the 30% premium bump is an adverse selection magnet.

What are they projecting with the 1332 waivers on steroids?: Current law places strong guidelines on approval of state waivers. States must meet or beat default ACA on coverage, actuarial value, benefits and cost. Senate BCRA only requires a 1332 waiver to beat default coverage on federal cost. These make the MacArthur/Upton amendments simple modeling exercises How do they project market functionality in extreme 1332 states?

Must-Read: Benjamin D. Sommers, Atul A. Gawande, and Katherine Baicker: Health Insurance Coverage and Health: “Perhaps no research question better encapsulates this policy debate than, ‘Does coverage save lives?… http://www.nejm.org/doi/full/10.1056/NEJMsb1706645#.WUriDI_R7Z4

…Beginning with the Institute of Medicine’s 2002 report Care without Coverage, some analyses have suggested that lack of insurance causes tens of thousands of deaths each year in the United States…. The Oregon study… was limited by the infrequency of deaths in the sample. The estimated 1-year mortality change… confidence interval of −82% to +50%…. Several quasi-experimental studies using population-level data and longer follow-up offer more precise estimates…. Compar[ing] three states implementing large Medicaid expansions in the early 2000s to neighboring states that didn’t expand Medicaid… a significant 6% decrease in mortality over 5 years of follow-up… [with] the largest decreases were for deaths from “health-care–amenable” conditions such as heart disease, infections, and cancer…. Massachusetts’ 2006 reform found significant reductions in all-cause mortality and health-care–amenable mortality… particularly [among] those with lower pre-expansion rates of insurance coverage… a “number needed to treat” of 830 adults gaining coverage to prevent one death a year. The comparable estimate in a more recent analysis of Medicaid’s mortality effects was one life saved for every 239 to 316 adults gaining coverage….

[Why] the nonsignificant cardiovascular and diabetes findings in the Oregon study?… First… hypertension, dyslipidemia, and elevated glycated hemoglobin levels are important clinical measures but do not capture numerous other causes of increased risk of death. Second… hundreds of thousands of people gaining coverage over 4 to 5 years of follow-up, as compared with roughly 10,000 Oregonians gaining coverage and being assessed after less than 2 years. It may take years for important effects… to manifest in reduced mortality…. Third… changes in self-reported health—so clearly seen in the Oregon study and other research—are themselves predictive of reduced mortality over a 5- to 10-year period… a 25% reduction in self-reported poor health could plausibly cut mortality rates in half (or further) for the sickest members of society, who have disproportionately high rates of death. Finally, the links among mental health, financial stress, and physical health are numerous,45 suggesting additional pathways for coverage to produce long-term health effects…

Must-Read: Minxin Pei: Xi Jinping’s war on the ‘financial crocodiles’ gathers pace: “Beijing will pass off a politically motivated purge as tough regulatory enforcement… https://www.ft.com/content/19810ea2-5814-11e7-80b6-9bfa4c1f83d2

…Making an example of China’s wealthiest tycoons can… rein in overly aggressive business practices endangering the stability in China’s overleveraged and under-regulated financial sector. But the political benefits… are likely to be even more significant. A large number of these tycoons had made their immense fortune before Mr Xi’s ascent to the top in late 2012…. For example, Wu Xiaohui, Anbang’s chairman who has recently been detained, is married to a granddaughter of Deng Xiaoping…. Connections, once priceless assets, have become dangerous political liabilities now that the same officials have either retired or fallen victim to Mr Xi’s anti-corruption campaign. By cleaning out China’s financial system, Beijing is able not only to restore some semblance of order in this vital sector, but also to get rid of tycoons with dubious political loyalties. Carrying out such a purge is relatively easy. Since many Chinese tycoons depend on state-owned banks for funding, the simplest way of pushing them under is to order the banks to cut off credit….

This crackdown will be discriminating. A large number of Chinese tycoons will be sitting ducks because of their enormous wealth and questionable political allegiances. Others will be left alone or forced to prove their loyalty. When it is over, we should expect a complete re-ordering of China’s economic oligarchy. The move against Anbang, Dalian Wanda and others is only the opening shot in this campaign…

Should-Read: Alberto Alesina, Stefanie Stantcheva, Edoardo Teso: Intergenerational mobility and preferences for redistribution: “Americans are generally thought to view the economic system as fair and see wealth as a reward for ability and effort… http://voxeu.org/article/intergenerational-mobility-and-preferences-redistribution

…while Europeans tend to believe that the economic system is unfair, and that wealth is the result of circumstances. This column tests this using new evidence on beliefs about intergenerational mobility in four European countries and the US, and confirms that Europeans do indeed tend to be overly pessimistic about moving up the social ladder compared to reality, while Americans are overly optimistic. These perceptions have important implications for how redistribution and equal opportunity policies will be received…