Deepish Thought

Alan Blinder has put forward a defense of the Affordable Care Act in today’s WSJ (gated).  It’s not terribly convincing.  Considering some of his points:

“But a badly designed website doesn’t signify a badly designed policy.”

True.  But bad execution will kill a good idea just as effectively as a bad one.  Also, the people who keep telling us that the ACA is good policy are the same ones who assured us that the website would be ready.  Then that it would be fixed by December 1^st.

“While Americans either read about or experience the website’s failures firsthand, the enemies of health-care reform are telling them that ObamaCare is a failure. And since virtually no one actually understands how the new law works, the verdict sounds plausible.”

This is a pretty telling admission.  The ACA passed 3 ½ years ago and we still don’t know what’s in it?  What has the administration been doing all this time?  Is a program that’s too complicated to explain too complicated to execute?  Was it even a good idea?

“Thus tech “glitches” make the law’s critics look better and make the administration look like the gang that couldn’t shoot straight.”

“It undermines trust in health-care reform and, more generally, in the government’s ability to solve problems.”

Yup.  Kind of a problem if your basic philosophy is that Washington needs to exercise more control over the economy.

“And it’s not just website problems. Americans are also hearing more and more about a second snafu. (Remember what those five letters stand for.) The president assured people over and over again that “if you like your [health insurance] plan, you can keep it.” Well, it turns out that maybe you can’t; your current insurance might get canceled.”

SNAFU might be an overly polite characterization.  The President is vulnerable here.  Either he didn’t actually understand the implications of his own signature legislative achievement.  Or he deliberately and repeatedly lied in order to sell it.

“Regarding coverage, while the health-exchange website’s problems are causing delays, they will be fixed—though I’m not sure I’d bet on Nov. 30. (If the administration makes that deadline, someone deserves a medal.) The initial enrollment period might have to be extended a bit, which would require some other adjustments. But even with delays, most of the uninsured will be able to get covered.”

I wouldn’t bet on November 30^th either.  Nor December 30^th for that matter.

Mostly this seems like soft peddling a pretty big problem.  If the initial enrolment period could easily be extended the Administration would have done it already.  Unfortunately the calendar isn’t infinitely flexible.  Changes have consequences.

From a perception perspective the situation is horrible.  On Jan 1 more people will have lost private health insurance due to the ACA than gained it.  A situation that may or may not be resolved by the end of open enrollment.

“Nor are the central elements of insurance reform affected by the technology glitches. Millions of people under the age of 26 are already benefiting by being kept on their parents’ policies. Pre-existing conditions will no longer prevent people from getting health insurance. Annual and lifetime limits will go the way of the dodo. Americans will like all that.”

I’m sure they will, until they get the bill.  All of these innovations will make health insurance more expensive.  Free lunches are difficult to legislate.

“Regarding cost containment, some of the law’s planned demonstration and pilot programs, designed to test various cost-reducing ideas, might be delayed. But they won’t be abandoned. Delays will hurt a bit because these experiments were destined to take years to complete in any case, and our political system is not known for patience.”

Has there been any positive news whatsoever about any of these pilot programs?  Negative news has been abundant.

“But there is at least some reason to think that the “affordable care” part of the act may be working already. The rate of inflation of medical costs has tumbled in recent years.”

We sacrificed the virgin, the volcano didn’t erupt, therefore……..

“All that said, no big social policy ever goes exactly as planned. Two additional hazards that have garnered relatively little attention to date worry me.

The first is the behavior of the “invincibles”—young people who, statistically speaking, are at little risk for high medical bills. To make universal coverage work, the government needs to bring them into the insurance pool as counterweights to the high-risk people.”

Not sure why we keep referring to young healthy people as “invincibles”.  Given what the legislation expects them to do “suckers” seems more appropriate.

“If many low-risk people stay out of the pool, we have a problem: The insured pool will be less healthy than the total population.”

Notice the subtle avoidance of the technical term for this possibility, which would be “death spiral”.

It’s too early to know what young healthy people will choose to do.  Many people place a very high value on having health insurance.  Young people may choose sign up for this reason, to avoid ‘wasting’ money on the penalty, or simply because it’s the law.

Of course if the website can’t be made to work they aren’t getting on board and the ACA will become a case study in adverse selection.

“Second, there’s the behavior of businesses with more than 50 employees. Some companies that now cover their workers with costly health-care plans might decide to drop that coverage once the exchanges are up and running.”

At this point businesses with lots of low wage employees resemble a group of penguins on the edge of the ice.  Nobody wants to be the first to jump.  But that doesn’t mean they aren’t considering taking the plunge.

Best guess is that businesses with a lot of high turnover/low wage employees initially manage costs through restricting as many employees as possible to less than 30 hours per week.  If the exchanges ever get unkinked, wholesale dumping of lower level employees onto the exchanges will begin shortly after.

“Considering all these problems, is the game worth the candle? Absolutely—because the status quo ante was so unacceptable. America cannot be a humane society if we leave 15% of our population uninsured.”

To be clear, even under the most optimistic assessments the ACA is going to solve maybe half of this problem – at enormous expense.

“America cannot be an efficient society if we spend 50% to 100% more of our incomes on health care than other countries, and yet don’t get better health outcomes.”

The second part of this statement is dubious at best.  Once you control for lifestyle differences (i.e. things like driving mileage, gun ownership etc.) that impact health but aren’t healthcare related the US healthcare system stacks up pretty well.

The first part is more interesting.   Something like 17% of US GDP is healthcare.  In other words 17% of the total economic output of the US is healthcare goods and services.  That’s a much higher percentage than other advanced countries, but is it the wrong percentage?  Don’t know, but then neither do any of the people who drafted the ACA.

“We can’t let a botched website get in the way of goals that big.”

No.  The poorly conceived, economically asinine, Rube Goldberg nature of the ACA is the reason we should start over.  The botched website really is incidental.

There is currently a great deal of enthusiasm in Liberal circles for raising the minimum wage. In fact, a $15 minimum wage is on the ballot for upcoming elections in the Washington city of SeaTac and both Seattle mayoral candidates have expressed interest.  To many this seems like an idea whose time has come.

The optimistic case for a $15 minimum wage goes something like:  Low wage workers spend a high percentage of their incomes, so increasing the minimum wage will increase demand which, along with lower turnover, higher productivity and higher employee satisfaction, will more than compensate employers for the increased wage cost, so there will be no impact on employment. 

In short, it’s all sunshine and bunnies.

There are several potential problems with this argument.  However, if you want to dissuade a Liberal friend from voting for a $15 minimum wage it might be better to point out that even if the optimistic case turns out to be substantially true in the short term, raising the minimum wage makes low skill workers more expensive relative to possible substitutes, foreign labor and automation.  Given time employers will find ways to utilize those substitutes.

Consider your local McDonald’s restaurant.  Low wage workers take your order, fill it and clean up the mess you leave behind.  McDonald’s has experimented with automating all of these things to some degree.  The reason your local McDonald’s still employs a bunch of people is that they’re currently cheaper and more flexible than the automation alternatives.  Double the cost of employing those people and the cheaper part may no longer be true.

Last week we went through the monthly ritual of analyzing the jobs number and drawing sweeping economic and political conclusions from this single (provisional) data point.

It seems like we could have more fun drawing sweeping economic and political conclusions from the extended data series.

Monthly growth of 200,000 jobs is widely considered to be indicative of a healthy recovery in the labor market (green line).

So far, the president’s record doesn’t look too healthy.

• The US has added 200K jobs in just 14 of the president’s 50 months in office
• The longest stretch of ‘healthy’ job growth was 4 consecutive months (Dec-11 through Mar-12)
• There have been 17 months of negative job growth
• The 45 months since the official end of the recession (Jun-09) have included 12 months of negative job growth (i.e. one in four)

The President has received a lot of Republican “feedback” on his statement that, “Somebody invested in roads and bridges. If you’ve got a business—you didn’t build that.”

Leaving aside the astonishingly inept phrasing, the President’s larger point is not unreasonable.  If you own a successful business you do benefit from things the government provide (rule of law, security, infrastructure, healthy educated workforce, basic research, etc).  It is really the logic that flows from this obvious truth that differentiates the President form his Republican critics.

The President appears to believe that success flows from what the government provides.  Therefore the government is justified in taking the fruits of that success.

Republicans tend to believe what the government is a necessary, but not sufficient, condition for individual success (even if they don’t generally state it in this way).  Therefore the government has only a limited claim on the earnings of successful individuals.

Beliefs about the relative importance of government have broader implications.

The President’s apparent belief that prosperity flows from government, implies that more government equals more prosperity.  From this viewpoint the cost of government is almost irrelevant.

The Republican view that things provided by government are merely one of the preconditions for prosperity leads logically to the focus on providing these things at minimum cost.

Unfortunately, we’re unlikely to see much thoughtful debate about the relative merits of these two viewpoints.   Hammering the President for the dimwitted quote above is much more fun.

Interesting insight on how people become billionaires in different parts of the world.

Many Americans appear to believe that they are the victims of a hopelessly corrupt economic system run by and for 1% oligarchs.  Before buying this narrative it might be a good idea to look at countries that actually have hopelessly corrupt economic systems run by and for oligarchs.

Now look at Russia, where one hundred billionaires control fortunes worth an astonishing 20 percent of national GDP. Russia has nearly as many billionaires as China but they control twice as much total wealth in an economy one-fourth the size. Just as striking, Russia is missing not only a middle class but also a millionaire class; according to Boston Consulting Group, China ranks third in the world for number of millionaires, while Russia is not even in the top 15 for millionaires.

The growing business influence of the state is reflected in the fact that 69 of those billionaires live in Moscow, the largest concentration for any city in the world. Protected by their patrons, the richest face little competition. Eight of the top 10 are holdovers from 2006. More than 80 percent of the wealth of Russian billionaires comes from non-productive industries like real estate, construction and especially commodities, namely oil and gas, in which political ties can sustain fortunes indefinitely. In no other developing nation is this share greater than 35 percent. Even in Brazil, a commodity economy at the same income level as Russia, the non-productive share of billionaires’ wealth is just 12 percent.

House Democrats have decided to make a great show of refusing to support the President’s deal on extending the Bush tax cuts.  It is difficult to understand why any remotely competent politician would take on such a clearly untenable position.  The inevitable climb down is clearly going to be deeply humiliating.

At the present time Democrats currently have two plausible alternatives:

1. Pass, however grudgingly, the President’s tax deal
2. Dig their heals in and ensure that:
   1. The President is severely damaged (What use is a President who can’t even rally his own party?)
   2. Democrats take the blame for everyone’s taxes going (Can’t avoid that when you willfully torpedo a bipartisan deal)
   3. The replacement deal to extend the Bush tax cuts will be done by the next Congress, in which Democrats will have even less leverage (Because that’s what happens when you lose the house)

Since most Democrats are not actually certifiable, it is only a matter of time before they back down and take option 1.

There are a fair number of people who seem to believe that, if they stick to their guns, house Democrats will somehow be able to negotiate a better deal.  This is pure fantasy.  The Democrats have precisely zero leverage in this situation.  Republicans already have a deal they like.  If the Democrats refuse to get on board they will be more than happy to blame Democrats for a tax hike, then force an even better deal next year.

Since all of the above is obvious to pretty much everyone involved, the political tactics being employed by house Democrats seem thoroughly mystifying.

One plausible explanation is that this little piece of political theater is aimed, not at the general public, but at Democratic primary voters.

Democrats who are losing their seats are taking the opportunity to position themselves as true guardians of the faith, just in case they want to run in 2012.  While those Democrats who survived the recent slaughter certainly don’t want to open themselves to a potential primary challenge from the left by being seen as too willing support a deal that the folks who vote in Democratic primaries aren’t too fond of.

Everyone knows a climb down is coming, but precisely which Democrats are held responsible for this humiliation by the party faithful may have a big influence on a lot of Democratic careers.

It appears that Messers. Simpson and Bowles are having some difficulty rounding up support from either Republicans or Democrats for their deficit reduction proposal.

This was entirely predictable, but very disheartening for those of us who would like to see the deficit reduced mainly through expenditure control.  What Republicans have apparently failed to grasp is that time is not on the side of fiscal conservatives.  As this insightful article points out, the longer we wait the more inevitable tax increases become:

To understand the stakes facing fiscal conservatives, one must appreciate how demographics, program indexing methods and political realities combine to stack the deck against them. By bipartisan consensus, we won’t cut the benefits of those already in retirement; we won’t send a $2000 check to an 85-year-old widow in January and then cut it back to $1600 in February. Both parties (including the most conservative members) repeatedly reaffirm their dedication to this principle.

As a result, with each new class of retirees there is a new set of politically inviolate benefit obligations. Moreover, due to the wage-indexation of the initial benefit formula, the minimum threshold of politically acceptable future benefits rises with each subsequent class of retirees. So, with each year of delay the share of the problem eventually solved by tax increases inevitably rises.*

Well before 2037, unless we cut benefits for those already retired, a tax increase could not be avoided even if the entirety of payments to new beneficiaries were shut off. Thus, if action is delayed for several years, virtually all of the “solution” will consist of tax increases.

Our potential success in constraining the growth of taxpayer burdens therefore depends largely on when a solution is enacted. It is not so simple as deciding a particular solution is faulty, tearing it up, and trying again in a few years on the hope that conservatives’ political position will then be stronger. Such a strategy naively ignores demographic realities. Enacting Simpson-Bowles by contrast would allow conservatives to lock in constraints upon cost growth that simply will not be achievable under a delayed solution.

Republicans may not actually be serious about deficit reduction.  Or they may be calculating that they will be able to negotiate a better deal next year.

If the latter is true they are making a serious gamble.  The election largely wiped out Democratic moderates.  The Democrats who remain are likely to be more committed to closing the fiscal gap with new taxes, and very much aware that they only need to stall in order to get their way.

The Republicans have the opportunity right now to shape the deficit debate by endorsing some variant of the ‘bi-partisan’ Simpson-Bowles plan.  If they instead try and push a Republican plan next year the chances of getting a deal drop to near zero.  Unfortunately for the country, failure to get a deal is effectively the same as voting for higher taxes.

* Reference to a chart showing projected increase in Social Security beneficiaries has been omitted from the quote

Some things just lend themselves to smart ass responses:

• New York Jets fans are demanding that Mark Sanchez be immediately inducted into the hall of fame.  Sure he hasn’t really done anything yet, but he takes a nice picture and seems to be much less of a jerk than the last guy.
• Apparently Angela Merkel was also considered as short listed for the Nobel Peace Prize.  The fact that she has only bought one bankrupt car company probably counted against her.

In the high profile lobbying contest to win hosting rights to the 2016 Olympics Brazil’s President Luiz Inacio Lula da Silva has completely shellacked President Obama.

In the grand scheme of things the location of the 2016 Olympics isn’t of great importance. In fact, Chicago is probably better off for having lost. However, Obama’s involvement in Chicago’s bid displays in microcosm one of the key problems with the Obama presidency.

Having stood aloof from the selection process, the president swooped in at the last minute, made a pretty speech and expected to swing the vote.

By contrast, the rather more effective President Lula da Silva was far more engaged. He apparently understood that the result would be decided well before the TV cameras were turned on. Lula was so confident he had the votes that he supposedly pressed the Obamas to go to Copenhagen.

President Obama’s approach to the Olympic selection process mirrors his approach to the far more important issues being decided on Capitol Hill. Stand aloof from the messy politics and trust that golden voice to swing the necessary votes.

It appears that we have an applause line President. He looks great on TV and gives a great speech. These are fine qualities in a politician, but fall well short of what is require to make an effective leader. When it comes to shaping legislation and winning diplomatic fights he is doing about as well as you would expect for a guy with a whole half term of Senate experience.

It appears that some liberal Democrats are so incensed by President Obama’s unreasonably centrist tendencies and willingness to compromise with Republicans that there is talk of Obama facing a primary challenge before the 2012 election.

It’s no wonder that so many in the liberal base are falling out of love with the president. So much so that there is even faint talk of an insurrection if Obama doesn’t straighten up and fly left. Recently, during an appearance on a cable TV show, Washington Post columnist Gene Robinson discussed the political costs for Obama if the public option is dropped from the health care bill. They included the possibility of a primary challenge in the 2012 presidential election. Said Robinson, “You don’t want to see the progressive caucus in a foul mood.”

A interesting question is whether the Obama re-election team would consider a primary challenge from the left a bad thing.  If you were trying to get a relatively liberal president re-elected, a wild eyed progressive challenger playing up how crazily centrist and bipartisan your guy was might actually be an asset.

The only scenario in which this might be negative is if the president is so weak in 2012 that a primary challenger actually has a chance of winning the nomination.  In that case President Obama might be forced to publicly tack left in order to win the primary, which might be the thing that costs him the general election.