Should-Read: Harold Pollack: Will “Repeal and Replace” Implode?

Posted on by Brad DeLong

Should-Read: I think that this bunch of Republicans will double down–will shift from “repeal and replace” to “undermine it so that it will crash and then replace”. I’m not terribly optimistic:

Harold Pollack: Will “Repeal and Replace” Implode?: Republicans just proposed a $12,900 annual premium increase on low-income 64-year-olds…

…A shambolic performance… politically self-immolating. I just don’t understand what Republicans are trying to do here…. A 64-year-old with a yearly income of $26,500 would see his annual net premium increase from $1,700 to a whopping $14,600—and this for a markedly less generous plan…. This was utterly predictable, too, given the main features of the Republican bill. Which raises a strange question: How and why did Republicans propose such a politically damaging plan in the first place?… I have never seen a less-professional, more shambolic legislative process….

Most Americans, including most Trump supporters, support ACA’s Medicaid expansion… higher taxes on Americans making more than $250,000… more generous subsidies to people of modest incomes who have trouble affording coverage. Democrats are united in opposition to AHCA. That’s unsurprising. As one Republican congressman told me: “The Democrats can’t work with us, not after the way Trump campaigned.” More impressive, Republicans have managed to propose something opposed by nearly every major interest group: the American Hospital Association, the American Medical Association, AARP, and the health insurance industry. Anti-ACA conservative commentators hate the bill. Republican governors in Ohio, Illinois, Massachusetts, Arizona, and Nevada have also come out against key pillars of AHCA, as have key Republican Senators. From a policy-wonk perspective, Republicans are doing scarcely better….

Perhaps this fiasco is the result of simple incompetence. But AHCA is such a fiasco that I wonder, alongside many others, whether Republicans are even trying to pass it. Whatever the cause, the driving dynamic behind this fiasco is noteworthy…. Republicans failed to put in the work at the interface of politics and policy….

Not that ACA is perfect—far from it…. [And] out of partisan spite, deep-red states shut out three million poor people from coverage under the new law…. Most realistic fixes to ACA require more spending, not less….

[But] whatever ACA’s defects, AHCA looks visibly rushed and shoddy….In theory, President Trump and his administration could step in to coordinate Republican efforts…. So far, anyway, the President lacks the expertise, the personal credibility, or consistent focus to play this unifying role…. Well-liked among Republican primary voters, he is disliked and distrusted by most Republican political professionals. That’s an obstacle, too. Republicans have also been dishonest about what Obamacare actually is and what is required to make it better. Since 2010, Republicans such as Rep. Tom Price honed their legislative chops by preparing “repeal and replace” bills that would snatch coverage from twenty million people while damaging state budgets and punishing health care providers. Since these measures would never be enacted, Republicans in Washington paid no political price. Out of power, they could market to their core constituents who distrusted Democrats…. Once Republicans unexpectedly seized power in Washington, their previous political pitch doesn’t work….

There is another thing, too. Democrats and Republicans across the country have big political differences. But it turns out that many want ACA to work. Medicaid expansion is the public health jewel of ACA. In Ohio, Indiana, Kentucky, and elsewhere, Republican governors and the Obama administration have admirably negotiated, spending billions of dollars to expand coverage, keep open rural hospitals, address the opioid epidemic in rural America. In my own research, I’ve talked with addiction professionals around the country who work for Republican governors and legislators. Many are proud of what they have accomplished. In part because Republican governors helped to craft and run it, Medicaid expansion seems surprisingly durable….

I confess I have no idea what will happen…. Republicans have a huge stake in passing something, given that repealing Obamacare was a central campaign promise…. I’d wager Republicans will find some way to pass something….. Perhaps if they are wise, they will cut ACA’s taxes on the wealthy and leave everyone’s insurance alone. Perhaps that is the best bipartisan compromise on health reform.

As Cosma Shalizi Says, “The Singularity Is in Our Past”

Posted on by Brad DeLong
Cursor and Preview of As Cosma Shalizi Says The Singularity Is in Our Past Hoisted from the Archives

: As Cosma Shalizi (2010) Says, “The Singularity Is in Our Past”: Look at the bleeding edge of urban North Atlantic or East Asian civilization, and you see a world fundamentally unlike any human past. Hunting, gathering, farming, herding, spinning and weaving, cleaning, digging, smelting metal and shaping wood, assembling structures–all of the ‘in the sweate of thy face shalt thou eate bread’ things that typical humans have typically done since we became jumped-up monkeys on the East African veldt–are now the occupations of a small and dwindling proportion of humans.

And where we do have farmers, herdsmen, manufacturing workers, construction workers, and miners, they are overwhelmingly controllers of machines and increasingly programmers of robots. They are no longer people who make or shape things–facture–with their hands–manu.

At the bleeding edge of the urban North Atlantic and East Asia today, few focus on making more of necessities. There are enough calories that it is not necessary that anybody need be hungry. There is nough shelter that it is not necessary that anybody need be wet. There is enough clothing that it is not necessary that anybody need be cold. And enough stuff to aid daily life that nobody need feel under the pressure of lack of something necessary. We are not in the realm of necessity.

What do modern people do? Increasingly, they push forward the corpus of technological and scientific knowledge. They educate each other. They doctor each other. They nurse each other. They care for the young and the old. They entertain each other. They provide other services for each other to take advantage of the benefits of specialization. And they engage in complicated symbolic interactions that have the emergent effect of distributing status and power and coordinating the seven-billion person division of labor of today’s economy. We have crossed a great divide between what we used to do in all previous human history and what we do now. Since we are not in the realm of necessity, we ought to be in the realm of freedom.

But although we have largely set these post-agrarian post-industrial patterns for the next stage of human history, the human world of this next stage is only half-made. The future is already here–it is just not evenly distributed. Of the 7.2 billion people alive in the world today, at least 25% billion still live lives that are hard to distinguish from the lives of our pre-industrial ancestors. Only 5% of today’s world population lives in countries where income per capita is greater than $40,000 per year; only 10% lives in countries where income per capita is greater than $20,000 per year.

The bulk of the world’s population is on the stairway to modernity. The patterns are set. The top of the stairway is visible–although it is not clear which top we shall reach: many possible tops are immanent in the patterns. Nevertheless, the climb will be hard. And that is what much of the history of the twenty-first and twenty-second centuries is likely to be about.

So how did this great transformation happen? And how did the way it happened shape who we are now and who we will be in the future?

The traditional tools, practices, patterns, and molds of history are not as much help in telling this story as one might hope. The history of how the world was greatly transformed is primarily economic and technological, and secondarily political and social. But historians are not used to placing the economic and technological in first place. In the study of any period back before 1800, there is no way that economic history can be seen as even one of the principal axes. Before 1800, most history at even the century-level–let alone the decade-level or the year-level–could not be economic history. History is change. And before 1800 economic factors changed only slowly. The structure and functioning of the economy at the end of any given century was pretty close to what it had been at the beginning.

The economy was then was much more the background against which the action of a play takes place than like a dynamic foreground character. Changes in humanity’s economy–how people made, distributed, and consumed the material necessities and conveniences of their lives–required long exposures to become visible. Economic history could be–indeed, had to be–a specialized ‘long duration’ history. It required a scope of perhaps 500 years, if not more, to be properly placed in the foreground of any historical canvas. And even then the story told was of recurrent patterns and cycles rather than development and change.

But since 1750 or so things have been different. The pace of economic change has been so great as to shake the rest of history to its foundation. For perhaps the first time, the making and using the necessities and conveniences of daily life–and how production, distribution, and consumption changed–has been the driving force behind a single century’s history. Even in the most long-established of professions, the pattern and rhythm of work life today is so very different from that of our ancestors as to be almost unrecognizable. It is these changes in production and also in home life and consumption, and the reactions to them, that make up the center ring action of the history that has made us who we are.

This post-1750 history takes place in two stages. The first stage is the nineteenth century: the century of the British Industrial Revolution. Call it 1750-1870. It opens up the possibilities. The second stage is the twentieth century. Call it 1870-2010. It sets the patterns into which the human world is likely to grow in the future.

Cosma Shalizi (2010): The Singularity in Our Past Light-Cone (November 28) http://bactra.org/weblog/699.html

What Happened to the Trump Infrastructure Push?: Bunga-Bunga Policy, or No Policy at All

Posted on by Brad DeLong
Cursor and Preview of What Happaned to Trump Infrastructure Bunga Bunga Policy or No Policy at All

There seemed, back in November, two ways the Trump infrastructure fiscal expansion could have gone.

The first was driven by the facts that Trump seemed to have ambitions that were “Pharoahnic”, and that Trump had been a real estate developer.

There were then no Trump plans for the infrastructure program. There were, however, plans to have plans. And the plans to have plans were aided by the fact that building things was what you would expect someone who had been a real estate developer to focus on. Since there were no plans, there was an opportunity to develop for Donald Trump with a real, technocratic infrastructure plan. It would have had, from Trump’s perspective, three advantages:

  • It would actually work–it would boost American economic growth, and so make people happy.

  • It would be Pharoahnic. Trump would leave his mark on America’s landscape in a visible way–something that is, for somebody who has for two decades been playing the game of celebrity, a big win.

  • It would make Trump’s presidency both be and appear to be a success, from the desired perspective of helping to make America even greater than ever.

And the idea that the economy was already at full employment, and did not need additional stimulus of any kind? That extra stimulus would be offset by the Federal Reserve, and that the overall effect on employment would be very small? That, taking into account the Federal Reserve reaction, the only major effect would be to raise interest rates? Perhaps. But that would not have been a downside. If you do seek–as we do–to normalize interest rates in the medium term, and if you want to see whether there are discouraged workers out there, moving away from monetary to fiscal as the stimulative balancing item is exactly the right thing to do. An extra $300 billion/year of bond funded infrastructure would substantially normalize interest rates.

The second was driven by the fact that there are an awful lot of small-government fanatics and some fiscal conservatives in the Trump coalition. That way would have generated a politics in which the normal fiscal infrastructure stimulus that both the situation and Trump’s background seemed to call for would not happen. It would simply not be done.

Instead, the Trump infrastructure plan would wind up building infrastructure on the government’s dime. That infrastructure which would then have been given away to friends of the administration. They would then have charged monopoly prices for access to it.

Little good as infrastructure–monopolists charging monopoly prices are rarely public benefactors on any large scale. No good of stimulus. Think of Silvio Berlusconi, but not on an Italian but on a North American scale.

Another pointless episode of bunga-bunga policy.

The U.S. would have been likely to lose, substantially, if that was what the Trump fiscal expansion had turned out to be. And then, of course, there would be the Trump tax cut: another nail in the coffin of sane and prudent fiscal policy, and another brick in the wall of the Second Gilded Age.

We may still have this bunga-bunga policy.

But with each day that passes with not even a plan to plan to have a plan, it looks more as though there is no Trump administration–just the reality TV simulacrum of one, cabinet members following their own administrative agendas, White House propaganda aides following their own propaganda agendas, and a Congress that seems to lack any sort of positive leadership. Not constructive infrastructure policy. Not bunga-bunga infrastructure policy. Simply no policy at all.

Constructive infrastructure policy now looks completely off the table.

Destructive bunga-bung infrastructure policy is still a possibility, but a low probability one.

No infrastructure policy now looks like the way to bet at even odds…

Must-Read: Saahil Desai: Trump’s Trade Policies Could Crush Mike Pence’s Hometown

Posted on by Brad DeLong

Must-Read: 80,000 people in and around Columbus, IN. 8,000 working at Cummins Inc.–if Cummins Inc. were to vanish tomorrow and if Columbus found no alternative products to export from its region, the whole place would literally dry up and blow away. And Cummins depends on its place in its global value chains: a trade war would destroy that place, and the stronger dollar likely to result from Trump’s tax cuts for the rich would destabilize that place:

Saahil Desai: Trump’s Trade Policies Could Crush Mike Pence’s Hometown: “Columbus [Oh]… an unemployment rate of 2.9 percent—the lowest in the state—and the country’s highest concentration of mechanical engineers…

…Cummins Inc. is the single biggest reason why such a large percentage of Columbus’s economic output is generated from exports. The Fortune 200 company… manufactures diesel engines… does business in 190 countries employs more than 8,000 people… anchors the local economy. Overwhelmingly, Columbus is Cummins, and Cummins is Columbus…. With investment from Cummins, Columbus has quietly emerged as a destination for world-renowned modernist and contemporary architecture… the legacy of former Cummins executive J. Irwin Miller, who envisioned breathtaking architecture and dazzling public art as way to draw top workers to Columbus in the 1950s.

“Cummins was having a hard time attracting professionals, and engineers especially, to come and live in the middle of cornfields in Southern Indiana—which frankly is a problem that Cummins is still combating today,” said Erin Hawkins, director of marketing at the Columbus Area Visitors Center. “You know, in small town Indiana, it’s tough to compete with big cities for college grads.” Miller pledged to pay the architect fees for any tax-funded, public building, as long as the city picked from a pre-selected list of architects, a promise that eventually evolved into the Cummins Foundation Architecture Program….

For companies in Columbus like Cummins that are reliant on trade, having a native son in the Vice Presidency may not end up being a cause for celebration. Jon Mills, a spokesman for Cummins, said the company has already had conversations with officials in the Trump administration to reiterate the importance of free trade to the health of the company. “It’s not just about our company, but we have twenty-five direct U.S. suppliers that we have ripple effects on as well,” Mills said. “It’s really important.”…

Trump often stresses the need for America to “start winning again.” But trade, unlike reality television, isn’t zero sum…. If Trump decides to impose import tariffs in an attempt to advantage American manufacturing, that could lead to a trade war that cripples Cummins’s ability to ship its diesel engines abroad…. Whether the Vice President will indeed represent the interests of his home town remains to be seen.

Posted in Uncategorized

Should-Read: Kevin Drum: Is Obamacare Already Dead?

Posted on by Brad DeLong
Is Obamacare Already Dead

Should-Read: I think that this from the smart Kevin Drum is largely but not completely wrong.

Remember: if the exchanges fail, then the next steps are either (a) single payer–socialized medicine by the government–or (b) guaranteed access–you go to the doctor or the hospital, they treat you, and it is then their problem to figure out how they cover their costs. The exchanges are the last chance for a market-based health-insurance system. But it is not about any beliefs that market-conservative means are pragmatically and technocratically effective. It is about dissing the Kenyan Muslim Socialist and all his works. And there are enough interest groups on the reality-based side of this to pull their chain, in the Senate at least…

Kevin Drum: Is Obamacare Already Dead?: “Ryan and Trump have been insisting for months that Obamacare is collapsing…. This is ridiculous, of course…

…It’s covering more than 20 million people at a lower cost than originally projected, and by any fair appraisal it’s been hugely successful…. But what happens next?… It’s clear that they’ll do everything they can to undermine Obamacare along the way. In a few months, insurance companies have to decide whether they want to participate in the exchange market in 2018, and I wonder what they’ll decide? The uncertainty is sky high now, and that means they have little incentive to continue. Remember, most insurers swallowed big losses early on in hopes of building a stable, profitable market later. But what’s the point of absorbing losses if it looks like—at best—years and years of chaos ahead?… I wonder. Merely by upending everything and making it clear just how dedicated they are to cutting taxes on the rich and cutting health coverage for the poor, have Republicans already managed to effectively repeal Obamacare without passing a single page of legislation?

Should-Read: Nancy LeTorneau: There Is No Grand Strategy to Repeal Obamacare

Posted on by Brad DeLong

Should-Read: Nancy LeTorneau: There Is No Grand Strategy to Repeal Obamacare: “The Congressional Budget Office… released their report…. What we’ve seen from conservatives/Republicans/the White House since then…

…If anyone can see a grand strategy here, I’d like to hear about it:

  1. HHS Sec. Tom Price and OMB Director Mulvaney said you can’t believe what the CBO says.
  2. Speaker Paul Ryan praised the CBO report.
  3. The White House produced a report that was even worse than CBO’s – suggesting that 26 million people would lose coverage.
  4. Someone leaked the WH report to Politico.
  5. Breitbart validated the CBO report by broadcasting the news that Paul Ryan’s plan would result in 24 million people losing their health insurance.
  6. Almost simultaneously, Breibart released a tape from last October in which Ryan said he was abandoning Trump forever and wouldn’t support him.
  7. Trump is telling conservative Republicans that he’ll work with them to make the bill even worse by speeding up the changes to Medicaid and basically saying, “who cares if that makes it less likely to pass the Senate, we’ll deal with that later.”

Let’s note one thing right away. The plan to rally right-wing media around the idea that the CBO report cannot be trusted has completely gone off the rails. When everyone from Ryan to Breitbart to the released White House report are validating it, that simply isn’t going to fly…. The theory that… Bannon is working… to discredit Speaker Ryan… Breitbart has consistently referred to this bill as “Ryan’s plan,” even though the president embraced it as “our wonderful new health care bill” the day it was released…. But then why is Trump working with conservative Republicans behind the scenes to get the bill passed, apparently with an assist from Bannon in dealing with the head of the Freedom Caucus, Rep. Mark Meadows (per Politico)?… I’m going to assume that the error in my thinking is assuming that there is either some grand strategy for passing Obamacare repeal or fighting the factional war…. The easier position to defend is that this is a party that doesn’t know how to govern and it’s being exposed for its inadequacies. The silver lining is that it could be good news for the 24 million people who want to keep their health insurance.

Must-Read: Thomas Hoenig: Basic Principles of Banking: Hoenig on Restoring Glass Steagall

Posted on by Brad DeLong

Must-Read: Successful financial regulation is a matter of well-known and well-understood basics: blocking and tackling:

Thomas Hoenig: Basic Principles of Banking: Hoenig on Restoring Glass Steagall: “With each financial crisis new regulations are added to an already long list of rules…

…Even so, the industry repeatedly finds itself tangled in financial crisis, struggling to avoid collapse and economic ruin. This happens despite assurances that the industry and its supervisors have become more sophisticated in their analyses and smarter in their decisions. However, there is compelling evidence that keeping with simple but well-tested principles can serve the industry, supervisors, and the public best:

  1. Underwriting standards and asset quality should be systematically reviewed and tested, first by the firms and then checked by the supervisor.

  2. Better disclosure of results will improve performance; it almost always does.

  3. Separating commercial banking and its inherent safety net from broker-dealer and proprietary trading activities will diminish conflicts of interest and abuse of the safety net….

  4. Finally, better capitalized is not the same as well capitalized, and it’s important to acknowledge the difference.

  5. Insisting that bank ownership provide funding—capital—commensurate with the bank’s risk appetite is the most fundamental step for assuring that the banking system is a contributor to economic growth.

I would add that limiting the optionality of the real decision makers is perhaps the most important: their payoffs should not be too convex…

Changing sources of inflationary pressures in the United States

Posted on by Emilie Openchowski
Federal Reserve Chair Janet Yellen addresses the Executives’ Club of Chicago.

What drives inflation in the United States today is a $19 trillion question. The Federal Open Markets Committee is wrapping up its March meeting and is almost certain to announce an increase in short-term interest rates. This move will come even though inflation, measured by the central bank’s preferred measure—the Personal Consumption Expenditures index—has been below the Fed’s 2 percent target for almost five years. What view of inflation and its determinants would lead to such a decision? Does that view make sense? Perhaps not.

The Federal Reserve’s outlook on inflation seems to be best explained by the Phillips Curve, or more precisely by the so-called expectations-augmented Phillips Curve. That curve shows an inverse relationship between unemployment and inflation: If unemployment goes down, then inflation goes up and vice versa. The augmented version accounts for inflation increasing or decreasing if households, businesses, and investors change their expectations of future inflation. This view squares with a prominent speech by Fed Chair Janet Yellen, in which she lays out a Phillips Curve view for an increase in rates as the unemployment rate hovers near some estimates of the long-term unemployment rate. The Federal Reserve’s view, in short, is that inflation is tied to changes in unemployment.

New research challenges the view that changes in the unemployment rate are an important indicator of future inflation rates. The paper by a group of five economists presented at the U.S. Monetary Policy Forum earlier this month finds that while unemployment has a statistically significant impact on inflation, the size of the impact is not very large. Changes in inflation expectations end up not having a statistically significant impact at all.

This is not to say that inflationary expectations are unimportant. As economists Stephen Cecchetti of Brandeis University and Kermit Schoenholtz of New York University’s Stern School of Business (two of the paper’s authors) note in a blog post, this result actually shows the importance of inflationary expectations. By credibly convincing the public that it will keep inflation low and stable, the Federal Reserve itself may have flattened the Phillips Curve. A flatter curve would mean that changes in the unemployment rate would result in much smaller changes in inflation.

One key policy implication of the current Phillips Curve is that policymakers today should be more concerned with the level of wage growth, not the changes in wage growth, when thinking about inflation. This “accelerationist” take on inflation, however, might not be the correct one at this point. In fact, the current relationship is a bit of a return to the Phillips Curve of the 1960s.

The paper by Cecchetti, Schoenholtz, and their three coauthors also has another important implication. The one thing they do find that influences inflation in the period since 1984 is past inflation. In other words, there’s a slowly moving trend of inflation, and that trend is going to be a good estimate of what happens next. A slow-moving trend would mean that to get inflation back to the Fed’s 2 percent target in the long run would require letting inflation overshoot 2 percent by a bit. It would also mean that pulling on the brakes with inflation below 2 percent makes it less likely inflation will get back to its target.

An acclerationist Phillips Curve view of inflation would have policymakers think that inflation is bound to increase significantly soon, with the unemployment rate so low. In other words, it’s a view that would have the Federal Reserve increase rates despite weak wage growth and an inflation rate that’s not yet at target. This view might be validated by events, but there’s quite a bit of cause for skepticism.

Correction: Edits to the fourth and fifth paragraphs to clarify what the retro feature of today’s Phillips Curve is.

Should-Read: Dan Alpert: The Case for Aggressive Public Infrastructure Spending

Posted on by Brad DeLong

Should-Read: Dan Alpert looks at the guts of the labor market in the housing sector and sees a “scissors crisis”: It is not that a labor shortage from a limited supply of skilled construction workers is pushing up wages and prices in the housing sector. Instead, slack demand is keeping contractors from being able to profitably offer construction workers the compensating differentials they need to make it sensible for them to supply labor to the sector:

Dan Alpert: The Case for Aggressive Public Infrastructure Spending: “There is substantial slack in the U.S. economy…

  • A substantial change in this recovery relative to earlier recoveries:
    • Over 60% of net jobs in Low-Wage/Low-Hour sectors
    • Rotation out of LWLH expected long ago
    • Nowhere to be seen
    • Dominance of LWLH contributing substantially to slowdown in productivity growth
  • Perceived labor shortages related little to robust demand:
    • Related to low margins in construction
    • Hence need to hire construction workers at average service-sector wage for profitability
    • Not labor shortage in sense of inability to hire–rather inability to pay a premium (and remain profitable)
  • Job openings still openings “at a price”
    • Price is wage less than required for compensating differential
    • End demand still too weak to make offering higher wages profitable
  • The private sector has done all it reasonably can
    • Yet the U.S. labor market remains a shadow of its former self
  • IT’S TIME TO REBUILD AMERICA

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