Js-kit has some comments embedded in the post, at the bottom of each post after clicking on the title of the post you want to read. There is a disconnect with the blue comment link at the top of the post (blogger comment format). Very inconvenient. Sorry.
Robert Waldmann
The one by Paul Krugman is a must read.
what I hear is that officials don’t trust the demand for long-term government debt, because they see it as driven by a “carry trade”: financial players borrowing cheap money short-term, and using it to buy long-term bonds.
[skip]
the remedy should be financial, not fiscal. Have the Fed buy more long-term debt; or let the government issue more short-term debt.
That does sound rather obvious doesn't it ? Why aren't they doing that ?
My guesses after the jump.
Robert Waldmann
Can the Fed do any more to stimulate the economy ? The question is back. The answer is only by making credible promises about the fairly distant future. My view is that this means no. I review the issue after the jump.
With all the talk of "Detroit," you would think that Michigan would have lost the most employees, as a percentage of same, on the year. After all, the scariest graph of the U.S. MSAs isn't scary for nothing.
But the Regional and State Employment data is out for October (h/t CR), and there's a different leader.
Apparently, the bursting of the Sunbelt Bubble (building expensive houses in the absence of a water table; what could go wrong?) compares well with destroying unionized automobile production. (Note to Senator Shelby: destroying Detroit didn't keep your state from being #10 on the list.)
Also note that #4 on the list is my favorite state for bank failures. (The three states with 20 or more bank failures since Bear Stearns failed are 4th, 9th, and 11th on the list. The only other state in double-digits right now, Florida, is 16th.) I'll wait patiently for Brad DeLong to explain again how "support of the banking system by the Fed and the Treasury [has] significantly helped the economy."
The third and biggest point is that many of those are large states that have leaned Democratic in the past several years. Anyone betting that they—and the next two states, North Carolina and Wisconsin, which both went for Obama in 2008—will be hard-pressed to support Democratic policies twelve months from now without a significant change in the trend.
New Jersey showed you what happens when you run a former Goldman Sachs CEO for Governor right now. Virginia showed what happens when the base isn't motivated. Paul Krugman makes the point directly:
The longer high unemployment drags on, the greater the odds that crazy people will win big in the midterm elections — dooming us to economic policy failure on a truly grand scale.
What are the odds of crazy people winning big? I'm not certain, but I make them much better than 20:1 based on the current data.
UPDATE: Via Mark Thoma, Free Exchange, of all places, also sees the danger:
[W]hat is clear is that it does no good for prominent, respected economists to continue heaping praise on a Fed that failed in its mission before the crisis and which [sic] is failing in its mission now.
Because as unpleasant as the prospect of Congressional intervention in monetary policy is, two more years of high unemployment might well lead to far worse.
Update:
Menzie Chin weighs in:
http://www.econbrowser.com/archives/2009/11/the_global_surf.html
Congratulations to Andrew Samwick of Capital Gains and Games for being named Professor of the Year in New Hampshire.
[cross-posted on ataxingmatter--see posting there for additional comments]
As some of you may know, I am one of the many people who eat a vegetarian diet. I don't eat cows, pigs, fish, whales, sharks, chicken, turkey, sheep, wild game, tame game... As I sometimes say when people ask me about my diet, I eat everything you eat, except for a very short list of items--the critters that can move themselves from one place to another (or move their appendages) under their own propulsion.
(Note that we often have two words for animals that we eat--their live-form word --e.g., cow, sheep, pig-- and their edible-corpse form word --e.g., beef, mutton, pork. That evolved when we borrowed the Romance language word for what we ate but kept the Germanic language word for the animals.)
It started when I was a child--I was one of those who would cut the meat into tiny pieces and then spread it all over my plate so it looked like I'd eaten it. The idea of eating a cow, with those beautiful liquid brown eyes, was repulsive. (My father came from a family with thirteen kids in the hills of Tennessee, so I'd seen cows up close.) I even took a whole piece of veal once and hid it behind the dining room cabinet (taking it out to the wastebasket after it dried)! I refused to eat the squirrel and venison that my dad brought home from hunting trips (mostly, if not always, somebody else's kill). I even refused to let my cocker spaniel share in that dead stock.
But now that I'm an adult, why do I maintain that diet? I get asked that a lot.
Funny, nobody says (with shocked exression)--"Gee, you eat meat? Why would anyone ever want to eat a toxins-laden dead corpse of an animal that lived a horrendous life and suffered an agonizing death? " But they do often ask--usually treating it as a good-natured tease about a wacky alternative diet--why I'd want to avoid eating corpses.
James McWilliams got me thinking about this again this morning, when I read his "Bellying up to environmentalism" in the Washington Post for Nov. 16, 2009, where he noted that we should be asking questions in the reverse, that make meateaters feel uncomfortable at defending their own meateating. After all, there's really no good reason for eating meat other than that someone is so addicted to its taste that he or she can't exert the willpower to do without it.
Rdan
(Run 75441...h/t)
Maggie Mahar writes an essay that is now cross posted at Angry Bear with the author's permission:
Health Beat, a Project of the Century Foundation;
November 4, 2009 Heath Care Reform-- Looking at the Glass Half-Full
What Has Been Accomplished; What Still Must Be Done
These days, many progressives are expressing deep disappointment with the health reform legislation now moving through Congress. Some suggest that some legislators made deals with lobbyists and let them write the bills. Others complain that both the subsidies and the penalties are too low. Still others don’t like the fact that states can “opt out” of the public insurance option, and decide not to offer Medicare E. Finally, many ask:
Why can’t everyone sign on for the public plan in 2013? Why do we have to wait until 2013? Why cn’t they roll out universal coverage next year?”
Normally, I would be among the first to critique the bills. By temperament and training, I’m both a skeptic and a critic.
But in this case, I think it is important to recognize that we cannot expect this first piece of health reform legislation to be anything but wildly imperfect. In fact, I’m impressed by the progress Washington has made in just ten months. I’ve been watching the struggle for health care reform since the early 1970s, and compared to what has happened over the past 39 years, this is mind -boggling.
I also believe that those who favor overhauling our health care system should send a strong signal to legislators: we support you for having come this far. We realize that you have three years to strengthen, change and refine the plan before rolling it out in 2013.
What Has Been Accomplished
What is astounding is that this Congress has made as much progress as it has. We may have a new administration in the White House, but we do not have a brand-new group on the Hill. The majority of our legislators are moderates; many are conservatives. Nevertheless, a sufficient number have found the will to stand up and back changes that would make health care affordable for millions of poor, working-class and middle-class Americans.
Suppose I make my monthly budget, and assume I'm going to spend $600 for food.
At the end of the month, I discover that I only spent $520.
I expected to take $80 out of savings that I now do not have to. My bank account is now $80 higher than I expected it to be at the end of the month.
Is this difficult to understand? Apparently it is if you're a financial journalist:
The White House, we are told, won’t be using about $200 billion of the $700 billion authorized under the Treasury’s Troubled Asset Relief Program, a lifeline for ailing banks. Instead it plans to use money never borrowed, never spent, that nonetheless increased the projected 2010 deficit, to narrow that projection of $1.4 trillion, according to a Congressional Budget Office estimate.
This un-borrowed, un-spent money qualifies as deficit reduction?
Yes. We expected a $1.4B deficit, it will only be $1.2B.
Next silly question.
For Asia’s emerging economies, Geithner’s high road entails strengthening “their social safety nets through sustainable health and retirement-benefit schemes, thus reducing the need for high precautionary saving that contributes to global imbalances.”
Uh, I think I'll leave the rest of this to Bruce. Who knows better than to bother with resent Valuing only one future cash stream and pretending it's the same as the current budget.
Rdan
Hat tip to Economist's View for the post from Top-down versus bottom-up macroeconomics, by Paul De Grauwe, Commentary, Vox EU for starting an interesting conversation on macro that I think is very relevant to the public story we tell ourselves about how our economy works. One key point is the nature of central planning in the private sector by private companies, especially those who drive how things are done. The public and media narrative tend to be quite skewed and limited, depending on the nature of special interest.
by Bruce Webb
I am still working out the new formatting and rather than hog all the page space here I'll just put up some links to the bill, the CBO Score, plus some extended discussion with extracted Tables at my site.
$894 billion cost offset by taxes and fees for a Ten-Year $129 billion deficit reduction.
Coverage for 94% of all legal non-elderly residents, 98% for all legal residents (includes Medicare). Public option opt-out. Abortion not covered in the PO but at least one plan in the Exchange must offer coverage, and one must not.
Otherwise take it away. Updates in Comments.
And, if I were a better person, you would be reading my interview with David Kurla, CEO of IkoToilet/Ecotact in this space.
But I'm not, so go to his website, especially the links for school, urban, and slum toilet provisions, and then see this John Sauer piece at the Huffington Post, and check out the information at Sauer's organization, Water Advocates.
My apologies for the inconvenience of changing the template. Even feed links were changed about in the transfer. Since the posts are intact, my first priority is fixing comments with js kit (and blogger comments for new).
Dan
Rdan
Martin Ford continues his thoughts on:
The Mythology of the Future Job Market
Angry Bear recently picked up an article by Michael Lind at Salon on the jobs of tomorrow. The story notes that advancing job automation technology is going to be the primary force that will shape the future job market. That’s something that I have also been talking about here.
Lind’s article then goes on to do a pretty good job of fleshing out the conventional wisdom on where jobs are going to come from in the future:
The most numerous and stable jobs of tomorrow will be those that cannot be offshored, because they must be performed on U.S. soil, and also cannot be automated, either because they require a high degree of creativity or because they rely on the human touch in face-to-face interactions. The latter are sometimes called "proximity services" and they include the fastest-growing occupations, healthcare and education.
So we are led to expect that, over time, the bulk of the workforce is going to migrate into jobs that require creativity or innovation, or jobs that depend on uniquely human traits or talents. Furthermore, these new jobs are going to require that any innovation, creativity or personal attention occur pretty much while actually holding onto your customer’s hand—so that the job can’t be offshored. Is that really a likely scenario?
The first thing to note is that the two sectors singled out as being promising—healthcare and education—are by no means exempt from automation. Specific healthcare tasks are likely to be automated, while decision making and patient monitoring may migrate increasingly into expert systems.
By Spencer
Industrial production only increased 0.1% in October, from a previosly estimated 98.5 to 98.6.
But I suspect this number was biased downward and will be revised higher.
As the chart shows, this changes the impression the previous reports had given that this was a normal to strong recovery in industrial output to one that it is a weak recovery.
A primary reason industrial production appears so weak is that October auto and light truck output fell to 6.83 million vehicles as compared to 7.15 million in September and a cyclical low of 4.05 million in June. However, as the production of all items excluding autos and high technology was unchanged in October the weakness appears to be widespread.
However, I am suspicious that this report overstates the weakness and will be revised up as other information is included and revised data is reported.
Much of the initial estimates of monthly industrial production data is based on electricity consumption data. However, the national average temperature days for October 2009 were extremely low at only 50.8 degrees Fahrenheit. In a quick check of my data base this is the second lowest October reading on record going back to 1921. The lowest was 49.4 degrees in 1925 and the only one I saw below 50 -- the highest was 60.0 in 1963. The norm is around 55 degrees so the October temperature days was some 10% below normal. This strongly implies that the electricity usage would have been significantly below normal in October and consequently the industrial production data estimates are undoubtedly biased downward.
Moody's had always assumed banks and their securities were "Too Big to Fail." Not any more:
Moody’s Investors Service will no longer assume that holders of the securities will benefit from government support to shore up troubled lenders, after the global financial crisis proved this wasn’t the case, Moody’s said in an e-mailed statement today.
"In some cases government bank interventions throughout the crisis have not benefited, and have even hurt, the holders of those instruments," Barbara Havlicek, a senior vice- president at Moody’s, said in the statement. "It is clear that hybrids are highly susceptible to losses due to their unique equity-like features."
Since ratings are essentially answering the question "Should I expect to receive full payment on this security?" the previous proclivity to rate paper AAA based on the idea that the U.S. Government would make investors whole in the case of a crisis* contributed to rating inflation.
This change is a welcome first step.
*This is essentially the same scenario as all the lendings that caused the S&L crisis: "we think the land has oil in it" so it's worth $X. So the banks lent X. And the land very often didn't have oil in it. So $X had been given for a dust pile in West Texas around which the also oilless land was selling, if at all, for Y, X>>Y. Oops.
Rdan
Not only is ER care enormously expensive for 'more routine' health concerns than a clinic, but perhaps are not equal for insure/uninsured even for traffic accidents, not withstanding our best wishes.
Sphere notes a report from the Archives of Surgery:
It's federal law: All seriously injured emergency and trauma patients must be given equal lifesaving care, whether or not they can pay for it. But that's not happening, according to a new report. The study, conducted by Children's Hospital Boston research fellow Dr. Heather Rosen and colleagues from three other hospitals, found that uninsured trauma victims ages 18 to 30 are dying at an annual rate 89 percent higher than insured victims with identically severe injuries.
As the health reform tornado continues to swirl on Capitol Hill, the data could provide fresh ammunition for those pushing for expanded health insurance coverage.
The study, published today in the Archives of Surgery, examines the survival rates for patients brought to about 900 U.S. trauma centers between 2002 and 2006, analyzing some 690,000 patients who had suffered penetrating trauma -- such as wounds inflicted by a gun or knife -- or blunt trauma from vehicle crashes and falls. Earlier research found 18,000 extra deaths a year among uninsured victims of such injuries. Rosen and the other researchers chose to focus on the 18-to-30-year-old subset because they had fewer existing conditions -- comorbidity -- that muddy the evaluation of the cause of death.
Robert Waldmann+
I paraphrase Kevin Drum
My post last night about the CMS report on healthcare reform ... [was not] a model of clarity. For more, see Ezra Klein here and Jon Gruber here. Combined with ... [Drum's original] post and this Wonk Room post, you should get a pretty good idea of what's up.
Kevin Drum's orginal post is much clearer than mine and makes the point I tried to make in the last paragraph.
After the jump I have further thoughts.
I quote from the wonk room post
CMS doubts that the health care industry could “improve their own productivity to the degree achieved by the economy in large” and predicts that the productivity adjustments in the House bill could lead some Medicare providers “for whom Medicare constitutes a substantive portion of their business” to stop seeing Medicare patients.
First I note again, the unrealistic productivity estimates are used to calculate Medicare compensation for institutional care providers (hospitals, nursing homes and home health care agencies) not physicians in private practice. This is important, because physicians in private practice are much more likely to refuse Medicare patients.
Second I ask if CMS chief actuary Foster is familiar with economics 101. The clause “for whom Medicare constitutes a substantive portion of their business” makes negative sense. (I'm trusting Wonk Room's Igor Volsky to have quoted without removing necessary context. I haven't gone back to the pdf.)
As usual, I start with a very unrealistic economics 101 model. I assume that hospitals aim to maximize profits (totally false). In that case, hospitals will accept Medicare patients if the fee is below marginal cost. Marginal cost is increasing along the relevant range. Consider hospital A and hospital B (assume they have the same number of beds and same marginal cost as a function of patient population for simplicity). A does a lot of business with the CMS, B just a little. If A refuses Medicare patients, then the reduction in its patient population will be greater than that of hospital B if hospital B refuses Medicare patients. This means that the average marginal cost of treating the patients it turns away will be lower. This means that it can't be profit maximizing for A to turn away medicare patients and for B to treat them.
Consider the extreme case of a hospital with only Medicare patients. If it refuses CMS rates it will have zero revenues and go bankrupt. Consider the extreme case of a hospital with no Medicare patients. Refusing to treat Medicare patients makes no difference at all.
OK so ospitals, including for profit hospitals, are not profit maximizing entities (I think no firms are). However, I don't think that there are hospitals with many Medicare patients which can afford to refuse Medicare compensation. Note they still have to provide emergency care (by law) and they can not bill the Medicare patients rather than the CMS (If they accept CMS payment, then they can charge patients up to 15% in addition to what they get from the CMS with or without reform).
The logic of Foster's argument is that hospitals which have lots of medicare patients will go bankrupt if the HR3692 is enacted and the limits are actually enforced. This logic is invalid, because the increase in insurance coverage implies more revenues for hospitals. One can't consider money from the CMS alone when considering whether a hospital goes bankrupt.
The relative rates CMS vs other are relevant to the choice of refusing to deal with the CMS. I think this would be financial suicide for the average hospital even if the cuts in CMS rates are enacted and not waived. Only hospitals who have few Medicare patients could afford to refuse to treat Medicare patients.
Basically, I think Foster is confusing marginal and average costs. He decides that if you lose money in an accounting sense doing something, then you have higher profits if you don't do it. That assumes that capital costs and overhead decline proportionally to patient population. That is a plainly false assumption and the inference based on it is nonsense.
Bob Somerby has been on a rant at The Daily Howler that "liberals" do not understand the Stupak Amendment.
Unfortunately, claims he makes about Rachel Maddow and Keith Olbermann and their guests do not apply to Laurie Rubner. At the Health Affairs blog, Ms. Rubner is direct and to the point:
From the very beginning, a central tenet of health care reform was that no one would lose coverage they already have. That’s why so many women are outraged by the Stupak amendment to the health reform legislation recently passed by the House. It goes against one of the fundamental tenets of health care reform: do not leave anyone worse off than they were before reform....
The Stupak amendment extends the group of women ineligible for abortion coverage far beyond its current breadth. It is essentially a middle-class abortion ban. The exchange would offer coverage to many of the 17 million women ages 18–64 who are uninsured, along with the 5.7 million women who are now purchasing coverage in the individual market. In addition, small employers are also likely to purchase their health insurance through the exchange where they may find more affordable options. Because the majority of health insurance plans in the private insurance market currently include abortion, many women will lose coverage that they already have in an exchange where abortion coverage is not permitted.
The Stupak Amendment is, among its other ills, not Pareto-optimal.
I wait—patiently, of course—for Andrew Samwick or Greg Mankiw or even Sensible Centrist Economists such as Brad DeLong and Mark Thoma to denounce the Stupak Amendment as a violation of the First Welfare Theorem.
Passionate defenders, gather ye round:
"Right there in the preamble, the authors make their priorities clear: 'one nation under God,'" said Mortensen, attributing to the Constitution a line from the Pledge of Allegiance, which itself did not include any reference to a deity until 1954. "Well, there's a reason they put that right at the top."
Rdan
I will be switching the template this week. The key is function this week...Let me know if everything works from comments to links. Next week come refinements.
by cactus
The weather was beautiful on the day I was almost murdered. Since it happened (or almost happened) in Brazil, it might not seem surprising that the weather was nice, but this was São Paulo where the only certainty is pollution. Beautiful days in São Paulo are worth noting, even when you barely make it through them alive.
The events of that day are not something I talk about much, and I doubt I have ever written about them. But I've been thinking about the murders committed last week by Major Nidal Malik Hasan. See, the guy who almost killed me - and I'll call him G, has a similar ethnic background, though he hailed from a point a few hundred miles and a border crossing away from where Hasan originated.
But there are some differences, or at least were, between G and Hasan. Hasan was in the U.S., and apparently was an American citizen. G was neither. But I don't know if that's still true. It is my understanding that G is now in the U.S., and may have acquired American citizenship. The reason I don't know with absolute certainty is that G's last name is kind of common in the Middle East, and his first name - always popular in the Middle East - became doubly so after an extremely anti-American "warrior" made a name for himself through the sort of spectacular failure that is so widely revered in the region.
G's problem with me was that I was Israeli. Except that I wasn't. To this day, I've never been to Israel. But I am Jewish, and an American, and apparently, to G, there is/was no difference between an American Jew and an Israeli. His problem with Israelis seemed to stem largely from the fact that the Israelis sided with the Christians during one of the Lebanese Civil Wars. Which brings up a wider issue - I don't think he was all that fond of any non-Muslims. Or what he'd call non-Muslims, but which would probably be better termed non-Islamists. (And there is a big difference.) I barely knew anything about him, never associated with him, and generally avoided him, but it was obviously he was pretty pissed off at the world around him.
And its also pretty obvious that G is not unique in disliking non-Islamists. Yet plenty of people fitting precisely that description (i.e., disliking non-Islamists and all that the West seems to stand for) appear to have no problem coming here, as much as they despise this country and its residents. But that kind of internal fucked-uppedness is not uncommon. Hasan could get his jollies at a strip club while mentally and metaphorically applying oil to the cleansing blade of the One True Faith.
The flip-side of the equation is the problem for me. Just because some people who are messed up in the head can maintain positions that are internally contradictory doesn't mean we should facilitate the process. After all, as its been noted many times, the Constitution is not a suicide pact. We as a people have no requirement to allow extremists into the country whose goal is to kill us. A bit of digging to ensure we don't let in people who believe Americans in general are evil and deserve to die because of their faiths or behaviors would not be unreasonable.
In fact, it should be a flat out question asked of those who would come to the U.S. "OK... Next question... Do you think the infidels should die? Yes or no?" (FYI, my father immigrated from Argentina, and I don't believe that was a question he was asked.) In fact, getting a citizenship should be a bit like a contract, and one of the terms of the contract has to be that citizenship gets revoked and you have twenty minutes to be on the next plane out if you join some organization for which "Death to America" is a rallying cry.
Engaging in such a policy would be discriminatory. I bet it would be opposed by organizations like CAIR. But we already discriminate. A few years ago, my first cousin and her family (from Argentina) were living in Mexico City, as her husband's job had transferred them there for a few years. They wanted to come to the US to visit family and do some tourism, and they had the funds to do so (which would have helped the US economy). The problem was they couldn't get a visa; apparently people with well-paying jobs abroad are viewed as having an almost uncontrollable desire to overstay tourist visas and seek out lucrative positions picking lettuce in Novato, CA or busing tables in some no-name place forty miles from Lincoln, Nebraska. Or something.
The source of discrimination, when it comes to immigration and tourism, is that more people want to come to the US than can fit at any one time without killing the goose that lays the golden eggs, so to speak. So if we're going to discriminate anyway, shouldn't we at least try to differentiate between our friends and our enemies?
______________________________________
by cactus
Robert goes out on a limb and guesses that Lori Montgomery fell for (or is pushing) Republican spin in this article in the Washington Post
Report: Bill would reduce senior care
Medicare cuts approved by House may affect access to providersA plan to slash more than $500 billion from future Medicare spending -- one of the biggest sources of funding for President Obama's proposed overhaul of the nation's health-care system -- would sharply reduce benefits for some senior citizens and could jeopardize access to care for millions of others, according to a government evaluation released Saturday.
The report, requested by House Republicans, found that Medicare cuts contained in the health package approved by the House on Nov. 7 are likely to prove so costly to hospitals and nursing homes that they could stop taking Medicare altogether.
Congress could intervene to avoid such an outcome, but "so doing would likely result in significantly smaller actual savings" than is currently projected, according to the analysis by the chief actuary for the agency that administers Medicare and Medicaid.
I have read the report (warning pdf) ... well actually up to the passage stressed by Republicans and Montgomery. Montgomery's article focuses on one paragraph deep in the report which begins "It is important to note that the estimated savings for one category of Medicare proposals may be unrealistic." That's some serious digging.
The paragraph goes on to discuss what seems to be new additional budgetary flimflam which is assuming that productivity in hospitals and nursing homes grows at the national average (measured productivity grows much more slowly and it doesn't matter if this is due to unmeasured improved quality of care). That would be part of a large savings of $ 282 billion. The report doesn't describe what the savings would be if Medicare rates were adjusted to a reasonable forecast of productivity growth.
Now I had assumed that Medicare cuts other than eliminating the Medicare advantage boondoggle were reductions in money effectively given to hospitals (and nursing homes etc) so they could afford to take care of the uninsured. Hospitals' budgets will be affected by increased health insurance coverage, both by the increases in the total fraction of people insured and the fraction of people with pre-existing conditions insured. This means that the total effect on Hospitals' budgets can't be calculated assuming only Medicare payment rates change.
Importantly, the Foster (the author) assumes that reduced Medicare payments will cause hospitals to choose to refuse Medicare patients and not drive Hospitals bankrupt. It is true that relatively lower Medicare rates will cause more hospitals to refuse Medicare patients. How many currently do? I googled
"hospitals which refuse medicare" I got links to articles about physicians who refuse Medicare patients and this link to someone who works at a hospital where they talked about refusing Medicare patients.
Medicare rates are already low. There sure don't seem to be many hospitals which refuse to treat Medicare patients.
OK so I tried the past tense and googled "hospital did not accept medicare"
This link to someone who says an anonymous hospital told her in 1998 that they didn't accept Medicare patients.
Quite frankly this doesn't seem to be a huge problem. The idea that it will get even bigger if Medicare rates fall further below other rates doesn't seem to me to merit page 1 treatment.
I think Foster is saying that he believes that the new restrictions on Medicare compensation will be waived just as the existing restrictions are waived. He can't say that Congress is flimflamming so he has to explain how this might be a natural response to unforeseen events in the future. My current guess is that the event will be the perfectly foreseeable complaints from hospitals and nursing homes and that the forecast that Congress will waive the rule is the only forecast a responsible actuary can make.
The Republican/Montgomery/www.washingtonpost.com headline guy spin that elderly people will be denied care if the bill passes is absurd. If that's the way things worked, the 1997 rule wouldn't be waived year after year.
There don't seem to be many reports of hospitals refusing Medicaid either.
No google hits for "hospital refuses medicaid" one for "hospital refused medicaid" to a publication of the National Center for Policy Analysis. Hmmm, where have I heard of that? It's the so called think tank which fired Bruce Bartlett for heresy.
The document to which I link asserts that Veterans care is queue rationed and that the veterans administration does provide as high quality care as that available to people with private insurance. Non ideological sources rate the veterans administration as the best care provider -- number one.
I think that "Hospitals will refuse Medicare and/or Medicaid" is a serious policy concern on a level similar to the "tax cuts cause increased revenues." And here it is on the front page of www.washingtonpost.com.
Update: Note I am writing about hospitals who refuse Medicare not doctors in private practice who refuse Medicare. My googling and questions were on hospitals which refuse medicare and/or medicaid. Of the first 7 comments, 5 discussed office based practices which refuse medicare. By my count letters "hospital" appear in that order 18 (eighteen) times in the post (sometimes followed immediately by an s). Somehow commenters seem to have overlooked all 18 (eighteen) of them.
This is not a quibble. The provision of the bill which Foster suspects will not be actually applied concerns "institutional" providers of health care not physicians in private practice. I quote from his report H.R. 3962 would introduce permanent annual productivity adjustments to price updates for institutional providers (such as acute car hospitals, skilled nursing facilities, and home health agencies) using a 10-year moving average of economy-wide productivity gains. [skip] end participation in the program (possibly jeopardizing access to care for beneficiaries).
That's why I asked about Hospitals refusing medicare patients. There is a big difference between squeezing the entities which can't be squeezed and squeezing those which can be squeezed (provided they are getting a lot more money due to increased insurance coverage so they won't go bankrupt).
Rdan
After having received e-mails regarding Mark Thoma's post on types of unemployment about who was included and excluded from the per centages, I thought a note on the relevance of the employment to population ratio to be worth repeating from comments on that post.
Lifted from comments by run 75441 regarding "unemployment"here:
...[D]id everyone finally awaken to the fact we are experiencing a "new and lower" plateau of people in the Civilian Labor Force as a percentage on the Non-Institutional Civilian Population. It is ~1.6% lower than what it was immediately after the 2001 Recession experienced 8 years ago which equates to ~ 4million additional people in the Not In Labor Force.
Eventually people will re-enter the Labor Force??? For 8 years now much of US Labor has been waiting for the tsunami of job creation that was supposed to come, has not come yet, and I doubt will come soon if . . . if at all. They waited too long to be concerned about unemployed Labor. For almost as many years, states have been engaging in training programs for unemployed workers, and it has not had an impact upon Unemployment or those relegated to the Not In Labor Force because the jobs are not there. Unless there is some serious job creation, outstripping increases in population growth; the plateau of 65.1% is here to stay and will probably drop lower.
Spencer's chart of "Nonfarm Business Labor Share" here: puts much into perspective for Labor its share of profits/wages since 1982 as shown here: "Productivity Growth." That share has been shrinking with the result of fewer people working the same numbers of hours for lower wages as productivity increases. The paradigm of higher productivity creating higher wages or less time worked as Tom Walker suggests, is at least 8 years dead. The increases in productivity is the result of few workers workering and lower hours while wages are dropping or are stagnant. We also have the issue of greater technological advances incorporating more artificial intelligence which will sideline even more labor.
[Eight] years of [S]tructural Unemployment is not a normal event. There is something radically wrong when Unemployment hovers at higher than normal levels and more people become structurally disenfranchised from the Civilian Labor Force. I might suggest more of the profits is going to Capital rather than Labor and job creation. The infrastructural costs in the US has always been higher than our Asian neighbors and this does include Healthcare Cantab. Hanging overhead is the chance much of the benefits and protective laws making up this infrastural cost may be shuffled into the background for the purpose of creating low wage jobs.
Thoma's article is a nice review of economic history and I hope a basis for some new ideas breaking down the old pardigms of economics. It is not much more than that for now.
UPDATE: Laurent Guerby, in comments, reminds us of his review of this issue back at the end of January: Original link (French); Babelfish translation to English. Previously discussed in a Guest Post by run74551 at AB here.
For the record, both my daughters were vaccinated today, under government supervision at no cost to us, in a procedure that took less than 10 minutes—including getting a five-year-old to take her coat off and, post shot, put it on again.
Via Felix Salmon's Twitter feed, without further comment.
(cross-posted from Skippy the Bush Kangaroo)
Rdan
For the sake of argument, jobs in our future over the next few years or so appear to be in the health care industry and education. Jobs needing less education than a BA are among the fastest growing.
Where are tomorrow's jobs going to come from? The question is more urgent than ever, with official unemployment hovering around 10 percent and with nearly one in five Americans unemployed, if you count part-time workers who want full-time jobs and people so desperate that they have given up looking for work entirely.
Most popular discussion about jobs focuses on the effects of offshoring of manufacturing jobs to China and other countries, many of which, like China, manipulate exchange rates and use subsidies to promote their industries. Combating predatory trade practices and rebalancing global trade by means of higher U.S. exports is important, in the short and medium term. But in the long run technologically driven productivity growth is the most important factor in shaping employment in the U.S. and every country in the world.
Productivity and innovation are the catch words, and examples demonstrate how this has worked in the last century. But if policy makers need to craft a response to mitigate the changes, and re-training happens, what is it going to be?
The emptying of the cubicles won't result in permanent mass unemployment, the present prolonged crisis notwithstanding. As it has always done in the past, labor will shift from more mechanized to less mechanized sectors. But what will those jobs be?
...
The aging of the boomers accounts for only 10 percent of the growth. The rest comes from increasing demand. That's because productivity growth in agriculture, construction and manufacturing has greatly reduced the cost of food, shelter and appliances. In the U.S. and similar nations, the freed-up income tends to be used on quality-of-life goods, of which healthcare is the most important.
...the economist Robert Fogel, "Just as electricity and manufacturing were the industries that stimulated the growth of the rest of the economy at the beginning of the 20th century, healthcare is the growth industry of the 21st century. It is a leading sector, which means that expenditures on healthcare will pull forward a wide array of other industries, including manufacturing, education, financial services, communications and construction."
...
Another widespread myth holds that most Americans need to go to college in the future. In reality, most of the fastest-growing jobs, including those in healthcare, do not require a four-year bachelor's degree. According to the Council of Economic Advisers: "The categories with some education required beyond high school are growing faster than those not requiring post-secondary schooling.
...
None of this means that we don't need world-class scientists and engineers, or that we don't need to rebuild our manufacturing export industries, or that we don't need to hire people to design and build up-to-date infrastructure and energy systems. High-tech agriculture, manufacturing and infrastructure and related business and professional services will remain essential to economic dynamism. But thanks to ever smarter machines, fewer and fewer people will work in the primary (field), secondary (factory) and tertiary (office) sectors. Most of the job growth will be in the "quaternary" sector of healthcare and other qualify-of-life services.
Robert Waldmann
Larry Summers, who is very very good at provoking debate, said
“It may be desirable to have a given amount of work shared among more people. But that’s not as desirable as expanding the total amount of work.”
Paul Krugman responds here
True. But we are not, in fact, expanding the total amount of work — and Congress doesn’t seem willing to spend enough on stimulus to change that unfortunate fact. So shouldn’t we be considering other measures, if only as a stopgap?”
Please click the link and read Krugman's op-ed if you haven't already. It is excellent but limited to 700 words. Unlimited reflections on the topic after the jump.
I'm going to start with my proposal. I think that there should be a combination of subsidies for new hires funded by revenues from cap and trade (I'm a member of the Pigou club) and an increase in the progressivity of the tax system (not just because I always want to increase the progressivity of the tax system).
Second, Krugman suggests that US unemployment is not just high, but much higher than it need be given the large recession and small stimulus. Note that the evidence he presents is the change in employment and unemployment in the US and Germany. One might suspect that this amounts to the US unemployment rate rising to a level similar to the German unemployment rate – that in effect Krugman is proposing that we don't accept unemployment that suddenly rises to around 10% in a recession but rather insist on such levels all the time.
One would be wrong (I admit I was such a one, I haven't been following German unemployment). The OECD standardized US unemployment rate surpassed the Euro area unemployment rate in August 2009 (warning pdf) (figures for September are in the mail the August figures were released October 12). The OECD standardized US unemployment rate 9.7% was significantly higher than the German rate 7.7% in August. The decline in German GDP was, if anything, slightly larger. I find this stunning.
So how did they do it and should we do what they did?
First all Euro area countries have strong restrictions on layoffs. At least two Italy and Spain have decided not to apply the restrictions to many newly hired workers starting, in the case of Spain, almost 30 years ago. The Spanish increase in unemployment is even huger than the US increase.
It was already clear in 1980 that employment protection protected employment in recessions. It is also notable that, before their reforms relaxing restrictions, Italy and Spain managed decades with no employment growth. I very much like employment protection legislation as it changes the balance of power between workers and employers. I don't like zero employment growth for decades. In any case, it isn't going to happen there (in the USA).
The effect of employment protection legislation is a confounding factor not relevant to the US policy debate and a major part of the explanation of the especially bad experiences of the US, Spain and Ireland.
Second job sharing. Germans have been doing this for decades. The idea is that there is a fixed number of hours of work demanded and it is better if everyone works part time than if some are unemployed. This reasoning is like a red flag to a bull to almost all economists certainly including Larry Summers (and including Paul Krugman in the past). Krugman considers it a third best approach imposed by political limitations. I'd note that the simplest way to do this would be to make the payroll tax progressive so that less has to be paid by firms and workers if there are more workers each of whom is paid less . Also a progressive payroll tax implies increased revenues in the future even if marginal rates are a function of real wages (so inflation doesn't cause bracket creep).
In one of my favorite papers of all time MacDonald and Solow argue that employment will be increased by a progressive payroll tax for fixed revenues (zero in their model). They consider a unionized firm (the paper is very old) but evidence on wages suggests that similar things happen without formal unions. The point is that it doesn't really matter why a firm is spending the same money to pay 3 people a lot or 4 people a little. Whether the 3 are paid a lot because they work longer hours or because they have higher hourly wages, hiring them is still 3 jobs for the price of 4.
I don't see any value added from applying the benefit only in cases in which one can document the splitting of a set of tasks to share jobs. This would be complicated and I don't think there is anything especially desirable about that.
Note a historical example, the Clinton tax increase of 1993. Not all taxes were increased as the bill also expanded the Earned Income Tax Credit. Taxes were higher on average and much more progressive. The tax changes were followed not only by a huge increase in employment but also a downward shift of the Phillips curve. Theory and evidence correspond in this case. Also the proposal is wildly popular according to dozens of polls.
OK aside from that Krugman mentions hiring subsidies. Now most such subsidies would go to employers who would have hired without a subsidy. One would expect much of that money to go to the workers who would have been hired anyway (how much depends on assumptions about labor markets and/or bargaining). So ? It's an excuse to pump more money into the economy which would be good policy.
Also such subsidies have been shown to affect employment. In particular a deadline to get the subsidy (only paid if one hires before oh say November 2 2010 just to pick a date) would have a large effect on the speed of the increase in employment. Following Greg Mankiw, I'd add it on to cap and trade as part of where the revenues go. As noted by Mankiw, this is also an excuse to start subsidizing before CO2 permits are actually sold as it takes time to set up a cap and trade system.
So I propose the Greg Mankiw/soak the rich plan to help US employment.
CBS Moneywatch now features Mark Thoma about 10 posts a month.
Apropos Angry Bear exploration of "structural unemployment", Mark writes on the topic of unemployment:
The types of unemployment
Economists define three types of unemployment: frictional, structural, and cyclical. Frictional unemployment is defined as the unemployment that occurs because of people moving or changing occupations. Demographic change can also play a role in this type of unemployment since young or first-time workers tend to have higher-than-normal turnover rates as they settle into a long-term occupation. An important distinguishing feature of this type of unemployment, unlike the two that follow it, is that it is voluntary on the part of the worker.
Structural unemployment is defined as unemployment arising from technical change such as automation, or from changes in the composition of output due to variations in the types of products people demand. For example, a decline in the demand for typewriters would lead to structurally unemployed workers in the typewriter industry.
Cyclical unemployment is defined as workers losing their jobs due to business cycle fluctuations in output, i.e. the normal up and down movements in the economy as it cycles through booms and recessions over time.
What is normal unemployment?
Cyclical unemployment is the main worry of policymakers such as the Fed, and they attempt to minimize this type of unemployment through policy changes such as lowering interest rates in recessions. We are currently seeing this in action. Frictional and structural unemployment are considered normal and necessary. When these are the only two types of unemployment that exist, i.e. when cyclical unemployment has been eliminated, the economy is considered to be at full employment.
Why are frictional and structural unemployment considered normal and necessary? Frictional unemployment promotes efficient matching of workers and jobs. It allows workers to leave jobs they don’t like or aren’t good at and then find new jobs to which they are better suited. If there were never any vacancies, finding a better matching job would be much more difficult if not impossible. It would require trading jobs with someone who has the job you want and wants the job you have (and both employers would have to agree to make the hires). This means that some degree of frictional unemployment is desirable.
Structural unemployment allows the economy to implement new technology such as robots on assembly lines, and to respond to changes in demand for various products. If we didn’t allow this type of technological change, we’d be using outdated production methods and always be consuming exactly the same mix of goods at every point in time.
Once defined, and probably needing several posts as AB is finding, is the call for retraining, workers moving to where the jobs are, and incentives for US firms to locate in areas of the US needing development.
The change in the structural component could, however, be significant. I expect structural unemployment to be higher than it was, particularly in the next few years. We had too many resources in housing, finance, and automobile production, and it will take time for the economy to make the necessary structural adjustments. When this is combined with continuing globalization, as well as the higher savings rate and correspondingly lower consumption expected from households in the future, both of which cause structural change within the economy, the expectation is that the new target rate of unemployment will rise above the 4 percent level it was at before the recession.
Exactly how much it will rise and for how long is hard to say. A 5 or 6 percent rate, or even somewhat higher is certainly imaginable, but getting it right is important. If policymakers target an unemployment rate that is too low, they risk causing inflation (one reason for the high rate of inflation in the 1970s is that the Fed targeted a 4 percent unemployment rate when the actual rate of normal unemployment was much higher due to structural and demographic change). If they target a rate that is too high, then they risk having people be unnecessarily unemployed in the economy.
However, this does not mean we are completely powerless. There are ways to help with structural unemployment, though the tools for doing so aren’t as powerful as we’d like. In essence, structural unemployment arises from a mismatch between the supply of jobs in various industries and geographical locations, and the workers available to meet those needs. Thus, job training that promotes a better match of worker skills with available jobs, programs that help workers move to places where jobs exist, and programs to induce firms to locate where there is an oversupply of workers, e.g. Detroit, can mitigate some of the impact. Extended unemployment compensation can also cushion the blow for workers during the adjustment period. But the history of these programs indicates that we shouldn’t expect miracles for workers, and some degree of higher unemployment will need to be tolerated while the economy undergoes the necessary structural adjustments.
As I am arguing on the same side as Henry Kaufman, and against the kind-hearted Mark Thoma, does the phrase "left-of-center" at the top of this blog have as much Memory Meaning as the Suzanne Vega song from Pretty in Pink?
Kaufman:
During the Greenspan years (1987-2006), the Fed clearly failed to recognize the significance of the many structural changes in the financial markets—such as the rapid growth of securitization and derivatives—on economic and financial behavior and thus for its monetary policy. The Fed also failed to foresee how the 1999 repeal of the Glass-Steagall Act, which had separated commercial from investment banking since 1933, would sharply accelerate financial concentration through mergers and acquisitions and thus contribute to the "too-big-to-fail" phenomenon.
Thoma:
The hope is that an independent Fed can overcome the temptation to use monetary policy to influence elections, and also overcome the temptation to monetize the debt, and that it will do what’s best for the economy in the long-run rather than adopting the policy that maximizes the chances of politicians being reelected.
On of those people lives in reality. The other, apparently, is a good econometrician.
by Bruce Webb
H.R.3962:
Affordable Health Care for America Act (Engrossed as Agreed to or Passed by House).
Back in July I singled out what I thought was the single most important provision of the House Tri-Committee Bill in a post called Sec 116: Golden Bullet or Smoking Gun. Yesterday I followed up with a new post here called STILL the Most Important Sentence in the House HR Bill which cited the ALMOST identical language between Sec 116 of the Tri-Committee Bill and Sec 102 of the bill as brought to the floor and posted similar material in diaries at dKos, MyDD, and Open Left. Only to find out from commenter Gerald Weinand, who actually read the bill with close attention to detail, that there were significant changes in wording that drastically changed the impact of this language by shifting it forward in time and then sunsetting it.
I don't know what to make of this change, but it is the subject of a LONG piece at the BruceWeb Read the Bill Part 3; and a possible reading error. In any event going forward I think it is vital that everyone be reading off the same page. The above link to the bill as passed may not be stable, if not you can search it pretty easily from the Thomas.gov site or use the pdf version published by the GPO: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h3962eh.txt.pdf
(Update: MG supplies a better Thomas link: http://thomas.loc.gov/cgi-bin/bdquery/z?d111:h.r.03962 Thanx)
My personal belief and a hope is that a mistake has been made and that this provision was not meant to sunset when the Exchange starts operation, and that a fix will be made, it would be a true shame if the best regulatory control of insurance company profits just ended up on the cutting floor, either deliberately or by accident.
by Linda Beale
(cross posted with ataxingmatter)
Tax Prof and its commenters
More on the Estate Tax--the Heritage Foundation speaks gobbledygook
hat tip to Tax Prof and its commenters
The Heritage Foundation, I'm afraid I've concluded, is not a "think tank" at all--it's a propaganda tank. And the propaganda it spews tends to be in support of ideas that may sound sort of okay if you don't probe them very deeply but are apparently intended to further the benefits of society for the elites who already enjoy most of the benefits of society.
Look at their most recent take on the estate tax. Beach, Seven Reasons Why Congress Should Repeal, Not Fix, the [Estate] Tax (Nov. 9, 2009). (Yes, I "corrected" the title--after all, the use of "death tax" is an attempt to use emotions about death to move people to hold particular positions about the tax. And there's no such thing as a tax on death--death is not taxable income. What is taxed is the estate left by the decedent to heirs or beneficiaries who did nothing to earn it. So estate tax is the correct name, and death tax is a manipulative play on words.)
I've argued here, of course, that the current fiscal crisis (brought on by many of those people, by the way, whose estates will likely be big enough to be subject to the estate tax if we are not so foolhardy as to repeal it before they die) calls for rethinking the "tax cuts are always good" mentality that was set in motion with Ronald Reagan's "privatization, deregulation, militarization, and tax cut" dogma. We do need to rebalance our budget once we are through this crisis, and a good place to begin is by getting rid of tax loopholes that don't make sense and retaining or even increasing taxes that make a lot of sense. The estate tax is a tax that makes a lot of sense and should probably be increased, not eliminated.
(ASIDE: Reagan is often treated as though he was a great philosopher. What he was was a master of sound bites and a person with rigid views that were self-contradictory. You can't increase military spending, privatize government function at great costs to the government, and cut taxes to pay for those new subsidies for private business and the military-industrial lobby without running up huge deficits. So he had a big tax cut, and then tried to make up for it with a bunch of tax increases.)
So how does the Heritage Foundation seek to justify its proposal for repeal of the estate tax? It provides seven arguments:
1) the estate tax discourages savings and investments
True, to some extent, but probably much less so than proponents of repeal would have us believe. Any tax discourages what is taxed, so labor taxes discourage labor and taxes on capital income discourage savings. But much less so in the case of the estate tax (compared to a tax on wealth as it is accumulated). The estate tax doesn't have much effect on living accumulators, because their goal is to accumulate ever more--if anything, the estate tax may encourage saving so that they will have "enough" to leave. So while the Heritage Foundation says that the estate tax sends a signal in favor of consumption, the fact is that estates are continuing to grow at phenomenol rates. IN fact, we might well want to encourage the wealthy to consume more and even say that this might be a very positive incentive effect of the estate tax, if only it were true. Wealthy consumption would reduce the size of the estate and limit the windfall power of plutocracies.
Of course, the estate tax doesn't have any effect once the one who gathered the estate dies--the decedent can no longer be incentivized to save or not. The estate tax doesn't have any incentive effect on the people who acquire the estate (heirs, beneficiaries) since they are getting a pure windfall, whatever they receive.
2. The estate tax undermines job creation.
The Heritage foundation is claiming that the tax money is kept out of the investment stream and therefore undermines job creation. This is just a restatement of the same argument in item one.
Again, no empirical evidence here, of course. Right-wing economists consistently claim that the wealth in estates would be the source of powerful job creation entrepreneurialism if only we would leave that tax money as well to heirs, so they could invest to create jobs, but there's no evidence to support that claim. Entreprenuerialism doesn't ordinarily come from wealthy heirs to estates sitting in their effortlessly acquired empires. In fact, again, it is more likely that dispersal of big estates would do more for job creation than letting heirs continue to horde the wealth set aside by their benefactors in hidden overseas bank accounts or invested in emerging markets or in other ways passively collecting income as most capital assets do. Even if letting heirs receive that tax money to invest rather than giving it to the federal government might create a few jobs, it is equally true that government spending with the same money creates jobs and perhaps does it better. Heritage's argument here just amounts to the same old saw that government is less efficient at using money than the private sector is. And again, this is simply not an established fact. In fact, we have evidence to the contrary in many instances--there are numerous examples that privatization is less efficient/more costly at getting the same job done. Take subsidized student loans compared to direct student loans without banks as intermediaries. The first costs the government money (to subsidize the banks) while the latter makes money for the government. Take Blackwater (now Xe Company). It's employees are paid 2 to 6 times what soldiers are paid for doing the same job. Not more efficient, and in fact more costly. and fewer jobs because each job is paid so much. There are numerous examples that privatization is less efficient at getting the job done and that government may in some, maybe many, instances be better at job creation than rich guys hording wealth or buttressing up under-utilized family ranch empires.
3. Estate taxes suppress productivity and wage growth
This is just another version of two which was another version of one, since what the Heritage Foundation says is that productivity and wage growth are suppressed because there is less investment that keeps businesses from buying tools and equipment that keeps them from hiring new employees. As noted, maybe some investment isn't made that would have been made, but also government spending takes place that wouldn't have taken place. Hard to be sure where the tradeoff is in terms of productivity and wage growth. To the extent that the estate tax repeal amount would be horded in unproductive, locked in investments, releasing it to the government, which spends it back out into the main stream of the economy might well multiply the productivty much faster.
4. Estate taxes contradict the central promise of American life--wealth creation.
Folderol. The central promise of American life is not plutocracy--it is the promise that everyone has opportunity to live a decent life--to acquire life's necessities and to live secure in their homes. There is in fact a conflict between that true conception of the central promise of American life and the conception forwarded by the Heritage Foundation, because if the wealthy elite is able to continue consolidating their stranglehold over the wealth of this country without contributing to the common good through taxation (as the capital gains preference, nontaxation until realization, and repeal of estate tax would mean), we will end up with a have and have-not society, with the haves living in gated communities and the have-nots left to struggle in a very rigid and immobile class structure without opportunities for advancement.
5. Estate taxes hurt those who have tied their savings up in land
This is the same old canard that the estate tax causes the loss of family farms and ranches. It's simply not even true, as has been explained countless times (there are special provisions to provide an installment payment so that the limited taxes due can be paid out of the income).
Then the Heritage Foundation seems to suggest we should pity those wealthy farmers and ranchers whose land value has increased astronomically so that their immensely grown wealth means they do have some tax to pay and they might end up deciding to sell some small part to pay whatever taxes are due. So? just because they own it in the form of land, we are supposed to say--don't ever pay any taxes, just continue to accumulate immense wealth, and pass it on to your heirs so that they can become a plutocracy? I don't think so.
6. Estate taxes hurt African American business owners
The Heritage Foundation only talks about African Americans when it is attempting to co-opt a group and get them to support something against interest. This is not about African Americans but about businessmen--an argument that people who have businesses ought to be able to pass them along without being taxed.
7. Estate taxes hurt women business owners
Again, this hasn't got anything to do with women. It's about business owners, just like number 6. A
nd there is no real showing, by the way, that the estate tax hurts small business owners. The estates of small business owners are almost always below the exemption level. The estate tax gets the Bill Gates (Microsoft) and Waltons (WalMart) type business owners. And they can clearly afford to pay some tax. The Heritage Foundation in items 6 and 7 is simply trying to pull on heart strings. In fact, there is no reason at all to let the Walton billions accumulate and consolidate power once Sam Walton is gone.
This is pretty much a garbage piece. Although Beach, the author, has a title with the terms "data analysis" in it, there is no data analysis in this opinion piece. There are three footnotes. One presents a very incomplete picture about the politics behind the Bush Congress's ridiculous bill dealing with estate tax (gradual decrease in the amount of tax collected until 2010, when the tax would be repealed for one year, but then the tax would spring back into life as it was pre-2001 when all of the Bush Congress's tax cuts died their natural planned death). One is a quote to the author's own work claiming that estate taxes "kill the economy" (hardly credible, since the economy actually has done much better in periods of history when it was much higher than it is now, and performed only weakly under the Bush tax cuts). One is work by Holtz-Eaken and Cameron Smith where they "present an argument" that repealing the estate tax--ie "investing" (if it was invested) the taxes saved--would create 1.5 million jobs. That's a very weak piece itself.
For more comments, look at the commenters on tax prof. I particularly like an anonymous posting, where he notes (again substituting the correct term and providing only part of his comment) that:
1) lack of [estate] taxes encourages investment lock-in and inhibits efficient allocation of investments
2) lack of [estate] taxes inhibits job creation (see 1)
3) lack of [estate] taxes discourages the real central promise of American life--that hard work and smarts, and not being born lucky, are to be rewarded
4) lack of [estate] taxes discourages the 19th century view that wealth comes from holding huge tracts of under-utilized land.....
And there's Chet Hardy's statement (an excerpt only here):
Its just amazing that the same people who decry deficit spending (Sen. Jon Kyl) turn on a dime and advocate repealing the estate tax. That's $20 billion per year folks. To put that in perspective, that's enough to provide health care to every child who doesn't have it. Its enough to build a new High Speed Rail line every single year.
by Bruce Webb
Much of the criticism about the House Health Care Bill coming from the left revolves around the 'fact' that it has no meaningful premium and so profit controls. Moreover most of those same people are promoting HR676 as an alternative. Frankly those people simply haven't read either bill with attention to detail. And this includes a lot of people sporting the title 'Dr.'
In both cases the key language comes right up front. In HR3962 it is as follows:
SEC. 102. ENSURING VALUE AND LOWER PREMIUMS.That final sentence simply guts the insurance companies current business which involves widening the spread between premium dollars collected and medical care actually provided. This sentence sets a hard limit on raising premiums while managing the risk pool to exclude those actually being likely to make claims. The tighter you manage your enrollment the harder it is to actually hit your mandated MLR, and every time you raise premiums you have to demonstrate that you have increased payouts to that same degree. Or else you have to rebate the difference.
(a) GROUP HEALTH INSURANCE COVERAGE.—Title XXVII of the Public Health Service Act is amended by inserting after section 2713 the following new section:
‘‘SEC. 2714. ENSURING VALUE AND LOWER PREMIUMS.
‘‘(a) IN GENERAL.—Each health insurance issuer that offers health insurance coverage in the small or large group market shall provide that for any plan year in which the coverage has a medical loss ratio below a level specified by the Secretary (but not less than 85 percent), the issuer shall provide in a manner specified by the Secretary for rebates to enrollees of the amount by which the issuer’s medical loss ratio is less than the level so specified.
In the original House Tri-Committee Bill this language was included in Sec. 116 and a site search on that term will pull up a series of posts on this dating back to July. And I have diaried on this elsewhere, yet somehow almost everyone has simply missed the significance of this. Or maybe I have overstated the case. If so explain it to me in comments. I will post a parallel post on the paragraphs that show HR676 to be a ridiculous piece of legislation, a case of a wolfish socialization program hidden in a Medicare for All sheep's clothing, but for the moment I don't want to distract from this key provision.
by Tom Bozzo
Yves Smith:
[D]o you think any CEO would dare pull the crap Benmosche has if, say, Warren Buffe[tt] held an 80% stake?No.
First, David Leonhardt argued that this recession was good for workers.
Now, Floyd Norris apparently has decided to mix and match data. (I wonder if the fact many NYT employees who are looking at their 45-day severance offers is having an effect on its economic coverage.)
One of the standard "economist jokes" is about the one who died because he forgot to "seasonally adjust" his pool. In that tradition, Norris declares:
The adjustments are for seasonality. For some reason, October is the month with the largest seasonal adjustment down in jobs. So the increase in the unemployment rate does not reflect people actually losing jobs. It reflects the belief that seasonal factors should have added more jobs than they did.
All this may be very reasonable, and there is no way I can think of to test whether the seasonal adjustments are reliable. [emphases mine]
Gosh, I wonder why October would have a larger seasonal adjustment, and whether there is any BLS data to support that adjustment?
Apparently, employers traditionally hire a lot of people in October for "the Holiday Season." And while it's possible that they will be doing all that hiring in November this year, it hasn't been the way to bet during this millennium.
Norris continues:
But I suspect seasonal factors are less important this year, when the economy may be changing directions, than they normally are.
It was with such optimism that Napoleon went to Russia, people bought VA Linux at $100 a share, and the Bush/Cheney/Rumsfeld axis decided to run a two-front war in Afghanistan and Iraq. With statements similar to Norris's:
In reality, the government report says unemployment rates remained steady at 9.5 percent. And the number of jobs actually rose, by 80,000. And the number of jobs for college-educated Americans rose more than in any month in the last six years.
Well, the number of jobs rose (as one would expect, given the Holiday Sales push) but Table B-1 is closer to 40,000 than 80,000:
Where we do see an 80,000 job increase is in the private sector, which is more than 500,000 workers lower than it was in August. If you want to play a non-seasonally adjusted, private-sector only game with the data, you should at least be honest about it.
More vitriol and data below the break.
The details of that 80,000 look even worse: declines in all Goods-producing areas (except about 200 new jobs in primary metals, 300 in "miscellaneous manufacturing," and 1,100 in motor vehicles and parts; cash for clunkers, anyone?) which are balanced by the Service sector, most notably the 63,500 new Retail jobs. Can you say "seasonal employment"? Floyd Norris apparently cannot.
The rest of the Non-Seasonally Adjusted figures are even less encouraging. Table A-8 of the report shows more than 100,000 people added to "not on temporary layoff":
while Table A-9 is depressing: a larger number of unemployed at all durations, with the median duration of unemployment increased by more than one month (in a month):
And while the BLS has not updated their Job Openings data for October, the graphic through September isn't exactly pointing to a decline in that median (or a robust recovery):
Is there a recovery in process? Maybe, though I'm not convinced, since most of the positive data seems, as Paul Krugman noted, "unrepresentative."
But things are not so good as Floyd Norris wants to pretend, even (or especially) using the data he chooses to highlight.
Good night Chesty, wherever you are.
by Bruce Webb
I get e-mail
Everyone,
Over the weekend, eight of us who worked on the Greenspan commission drafted a joint written statement (attached and pasted below.)
We have just submitted it to the Budget Committee. We are hoping it gets as wide a distribution as possible. In that regard, if any of you are able to post it on your web sites, and get it in the hands of bloggers, reporters, etc., I and the other signatories would really appreciate it.
Best, Nancy
(Update: the below now available as an linkable online Doc: http://docs.google.com/View?id=dc36qc9g_1crqqnpdt )
STATEMENT OF
STAFF TO THE 1981-83 NATIONAL COMMISSION
ON SOCIAL SECURITY REFORM
HEARING ON BIPARTISAN PROCESS PROPOSALS
FOR LONG-TERM FISCAL STABILITY
THE BUDGET COMMITTEE
U.S. SENATE
NOVEMBER 10, 2009
Chairman Conrad, Ranking Member Gregg, and Members of the Committee:
This statement represents the views of eight individuals who helped craft and secure the enactment of the Social Security Amendments of 1983.[1] Those amendments, which followed the recommendations of the National Commission on Social Security Reform (the so-called Greenspan commission), eliminated Social Security’s then-projected short-range and long-range shortfalls. Our involvement with the Commission’s work may provide useful insights into the advisability of using a commission or task force to eliminate, as part of an effort to control the overall federal deficit, the long-range shortfall now being projected for Social Security. Social Security’s current projected shortfall, it should be noted, is much less immediate and severe than the shortfall Congress eliminated twenty-six years ago.
Fast-Tracking Social Security Legislation Is Unprecedented
An expedited procedure, which limits debate and prohibits all amendments, would be unprecedented: Since its enactment in 1935, Social Security legislation has always had the benefit of (1) full hearings before the House Ways and Means Committee and the Senate Finance Committee; (2) executive sessions which provided all members the opportunity to offer amendments; (3) unlimited debate and opportunity for amendments in the Senate; and (4) debate and amendment in the House of Representatives, consistent with its rules. This was the procedure that was followed in the enactment of the Social Security Amendments of 1983, which eliminated the then-projected Social Security deficit.
Throughout Social Security’s long history, advisory councils have been used frequently to recommend changes. Congress has always used the normal legislative process when considering those recommendations. The normal legislative process was followed in 1983, when Congress considered the Greenspan commission recommendations. Indeed, the decision to raise the retirement age was the result not of a commission recommendation, but of an amendment offered by Representative J.J. “Jake” Pickle (D-TX) during consideration of the legislation on the floor of the House of Representatives.
The Greenspan Commission Succeeded Because of its Broad, Diverse Composition
In addition to recommending that the normal legislative process be employed, we advise that any task force or commission that is established with respect to Social Security be broadly representative, including members from business, labor, and the general public. This was the composition of successful Social Security advisory councils and commissions of the past, including the Greenspan commission.
Part of the success of the Greenspan commission was its diverse membership, which included the then-President of the AFL-CIO, Lane Kirkland; four business leaders, including the then-President of the National Association of Manufacturers, Alexander Trowbridge; a leading advocate for the elderly, then-Congressman Claude Pepper (D-FL); and a leading women’s advocate, former Congresswoman Martha Keys (D-KS). We believe that good public policymaking demands that any Social Security task force or commission be broadly representative of labor, business, seniors, women, and other groups vitally affected by Social Security.
Base Closure and Realignment Commission Analogy Overlooks Fundamental Differences
Those who advocate a fast-tracked procedure for reform of Social Security and other entitlements frequently invoke the example of the Base Closure and Realignment Commission (“BRAC”). The political context and constitutional structure of BRAC, however, are completely different. Because the national interest in closing unnecessary bases was in sharp tension with preventing the adverse and localized economic consequences of closing a particular base, success depended on all members agreeing to elevate national interest over local interest This posed a classic prisoner’s dilemma: If only some members acted in the national interest and against the localized interest of those they represented, while others acted solely in defense of their localized interest, the ones acting in the national interest would “lose,” because the national interest would be defeated but their local interest would not be protected. Consequently, without a mechanism to require everyone to act in the national interest, the natural tendency would be to engage in logrolling, forming alliances to prevent one’s own base from being closed, and the obvious result would have been that no base would be closed. BRAC provided a mechanism which permitted escape from this prisoner’s dilemma. An impartial expert panel determined which bases to close and Congress agreed in advance to accept the entire package of recommendations unless a majority of both Houses objected in a single up-or-down vote.
In stark contrast to base closings, where local and national interests may diverge, local and national interests are aligned perfectly with respect to Social Security, because every state and every district includes beneficiaries and FICA-paying workers. Consequently, every member of Congress has comparable interests and concerns, though, of course, they may differ on principles and preferences. Those principles and preferences should be open to full unrestricted deliberation in the Congress. Members have been elected to apply their principles and preferences to hard decisions; a commission with responsibility over Social Security, where its recommendations are considered under expedited procedures with no power to amend, improperly shifts responsibility and shields members from accountability.
In the case of the base closings, Congress could have simply provided guidelines and delegated the decision to the Department of Defense. Instead, Congress chose to retain greater control and accountability by establishing a commission and preserving the power to reject, on an all-or-nothing basis, its determination. Unlike the decision about which specific bases to close, Congress lacks the constitutional authority simply to delegate the decision to change Social Security’s income or outgo. Exercise of the power to tax and spend under Article I of the Constitution requires that Congress itself, not a delegate of Congress, make the relevant decisions and take full constitutional responsibility for them, together with full accountability.
Establishing a commission and considering its recommendations under expedited, extraordinary rules blurs accountability and therefore breaches the spirit of that basic principle of constitutional accountability. History shows that Social Security reform can take place through the normal legislative process, without recourse to extraordinary arrangements. We witnessed it in 1983.
Social Security’s Vital Importance to the Nation Requires Public Accountability
Because Americans in the last year have lost trillions of dollars in home equity and retirement savings, it is more important than ever that Social Security reform be addressed in the sunshine. Social Security today provides an economic lifeline more crucial than ever to the millions who receive its benefits and the millions more who are insured in the event they, or workers on whom they depend, lose wages as a result of disability, premature death, or old-age. In 2009, more than 52 million people are receiving monthly benefits, including 33 million retired workers, 2.4 million spouses or divorced spouses of retired workers, 4.4 million aged widow(er)s, 7.7 million disabled workers, and 4.1 million children of deceased, disabled or retired workers.
Our brave soldiers wounded in Iraq and Afghanistan receive Social Security benefits, as do their spouses and children, and so do the families of soldiers who have given their lives in defense of the nation. Though little noted, Social Security continues to provide benefits to the families of those who lost their lives in the 9/11 attacks. Its benefits -- which are crucial to the vast majority of its beneficiaries and the communities in which they live and spend -- are modest by any measure. Indeed, average benefits are less than what is paid for full-time minimum-wage work. Nor is there waste: the program is efficient, returning in benefits more than 99 cents of every dollar collected in income.
The importance of Social Security demands that proposals for change receive careful consideration, with public participation through its representative groups, so that the implications of all changes are closely examined and clearly understood. Any kind of expedited procedure would be a disservice to the American people.
Social Security, Currently in Surplus, Is Not Part of the Deficit Problem
Moreover, there is no need for hasty action with respect to the program. Social Security is currently in surplus. According to the 2009 Annual Report of the Board of Trustees, published May 12, 2009, Social Security ran a surplus of $180 billion last year and had accumulated a reserve of $2.4 trillion. (Even excluding the interest income, there was still a surplus of $64 billion.) [2] The Trustees’ Report projects that Social Security’s accumulated reserve will continue to grow until about 2024,[3] and, the program can continue to pay full benefits until 2037 to the millions of children, disabled workers, retired workers, and spouses (including widowed and divorced spouses) dependent on those benefits. Indeed, the most recent projections of the Congressional Budget Office, published in August, forecast that full benefits can continue to be paid until 2043. Consequently, Congress has the time to undertake careful, deliberate action through the normal legislative process.
Social Security Is Already Prohibited under Current Law from Deficit Spending
Though few realize it, Social Security already contains an automatic built-in trigger to restore it to balance, if it should ever have insufficient assets to cover scheduled benefits. The law prohibits Social Security from paying any benefits with respect to which it has insufficient revenue. Consequently, if at any point in the future, it has insufficient revenue to cover the costs of benefits, those benefits will be automatically reduced, without any action by Congress.
Social Security Helped the Country Avoid a 1930s-Style Depression
The recession that almost turned into a depression holds lessons for the future. The banking and financial systems almost collapsed, requiring unprecedented federal help. Millions of Americans lost trillions of dollars in private pension wealth. In fortunate contrast, Social Security proved rock solid, providing guaranteed benefits that help offset lost earnings and stimulate the economy by maintaining purchasing power. Hidden in the shadows of the unemployment and foreclosure statistics of the 1930s were elderly parents dependent on and living with adult workers. That added suffering has been largely avoided today, thanks to Social Security.
For all these reasons, while we support efforts to bring the federal deficit under control, we urge members of this Committee and all members of Congress to refrain from employing a fast-tracked procedure for Social Security, and instead allow Congress to consider Social Security legislation through the normal procedure which has resulted in successful legislation in the past.[4]
Respectfully submitted,
Nancy J. Altman, J.D. (Executive Assistant to Chairman Alan Greenspan, 1982-83)
Merton C. Bernstein, LL.B., Coles Professor of Law Emeritus, Washington University
(Principal Consultant to the Commission, 1982-83)
Suzanne M. Blouin (Executive Assistant to Executive Director Robert J. Myers, 1982-83)
Patricia E. Dilley, J.D., LL.M, Professor of Law, University of Florida
(Professional Staff to the House Subcommittee on Social Security, 1981–87)
Elizabeth T. Duskin (Senior Staff Adviser to the Commission, 1982-83)
Lori L. Hansen (Technical Adviser to Commission Member Robert M. Ball, 1982-83)
Eric Kingson, Ph.D., Professor of Social Work, Syracuse University
(Policy Advisor to the Commission, 1982-83)
Bruce D. Schobel, FSA (Staff Actuary to the Commission)
[1] Seven of the eight signatories of this statement served on the staff of the Greenspan commission. Nancy J. Altman, J.D. served as executive assistant to Alan Greenspan, who chaired the Commission; Merton C. Bernstein, LL.B.., Coles Professor of Law Emeritus, Washington University, served as principal consultant to the Commission; Suzanne M. Blouin served as executive assistant to Robert J. Myers who was executive director of the Commission; Elizabeth T. Duskin served as Senior Staff Adviser to the Commission; Lori L. Hansen served as technical adviser to Commission Member Robert M. Ball; Eric Kingson, Ph.D., Professor of Social Work, Syracuse University, served as policy advisor to the Commission; and Bruce D. Schobel, FSA, served as staff actuary to the Commission. The eighth signatory of this statement is Patricia E. Dilley, J.D., LL.M, Professor of Law, University of Florida, who served as professional staff to the Subcommittee on Social Security of the Ways and Means Committee of the U.S. House of Representatives from 1981 to 1987, and worked closely with the staff of the Greenspan commission.
[2] While Social Security is in surplus with or without inclusion of its investment income, we believe that the investment income should be treated identically to all other sources of income. Some have argued that Social Security’s investment income should be ignored because it involves inter-fund transfers which are not shown when the federal budget is displayed on a unitary basis and are irrelevant for the limited exercise of macroeconomic analysis. In contrast, we believe that in determining the financial status of Social Security, it is illogical to exclude its investment income, which has been a source of Social Security revenue starting in 1937, and is dedicated, by law, to the exclusive use of its beneficiaries.
[3] See footnote 2.
[4] We have limited our statement to Social Security, but many of the same arguments apply to other programs, such as Medicare. It too is vitally important to the nation, has lower administrative costs than private insurance despite its coverage of the most expensive part of the population, and has rising costs primarily as a result of the same pressures that are driving up the nation’s health care costs, private as well as public. Like Social Security, it has never been subject to an expedited fast-track procedure. The only reason to subject it to one seems to be simple avoidance of accountability.
by Tom Bozzo
An AP story (via Felix Salmon) based on an analysis of "Cash for Clunkers" transactions is circulating with the non-news that a number of the transactions involved trades of gas-guzzling trucks for only modestely less gas-guzzling trucks. Here's the lede:
The most common deals under the government's $3 billion Cash for Clunkers program, aimed at putting more fuel-efficient cars on the road, replaced old Ford or Chevrolet pickups with new ones that got only marginally better gas mileage, according to an analysis of new federal data by The Associated Press...
The single most common swap — which occurred more than 8,200 times — involved Ford F-150 pickup owners who... trade[d] their old trucks for new Ford F-150s. They were 17 times more likely to buy a new F-150 than, say, a Toyota Prius....
Whoa now. It isn't until the 6th paragraph that readers are told the analysis involves more than 677,000 transactions, so the most common swap accounts for just 1.2 percent of cash-for-clunkers transactions. The seventh paragraph finally deigns to mention the average fuel economy statistics: 15.8 mpg for the traded clunkers, 24.9 mpg for the purchased vehicles — if you invert the mpgs, that's a 36.5% reduction in fuel consumption at the means.
Salmon for whatever reason reckons this makes cash-for-clunkers the administration's worst policy initiative yet, which brings a lolcritter to mind. Even William Buiter granted in an otherwise cranky post that, under conditions clearly met by the program (i.e. a temporary incentive that's big enough), the programs are "bound to work" as Keynesian stimulus which arguably the administration hasn't pursued in sufficient quantity. [*]
More below the jump.
None of this is news because the ability to trade old trucks for slightly more fuel-efficient new trucks was a widely reported feature of the enacted program design, which was biased towards the stimulus end of things, given the truck-heavy product lines of the domestic three. Participants could get $3,500 for a 1 mpg improvement in a light truck-for-light truck trade. Still, program participants generally used the credits for something better than 2 mpg improvements. Here's the full distribution of differences between the old- and new-vehicle MPGs as reported in the CARS public transaction database:
mileage_diff | Freq. Percent Cum.
------------+-----------------------------------
-3 | 4 0.00 0.00
-2 | 5 0.00 0.00
-1 | 20 0.00 0.00
0 | 116 0.02 0.02
1 | 9,961 1.49 1.51
2 | 37,486 5.61 7.12
3 | 31,130 4.66 11.78
4 | 36,584 5.47 17.25
5 | 50,526 7.56 24.81
6 | 56,730 8.49 33.30
7 | 50,187 7.51 40.80
8 | 49,397 7.39 48.19
9 | 41,127 6.15 54.35
10 | 62,020 9.28 63.62
11 | 71,757 10.74 74.36
12 | 47,101 7.05 81.41
13 | 38,482 5.76 87.16
14 | 26,377 3.95 91.11
15 | 16,205 2.42 93.53
16 | 10,801 1.62 95.15
17 | 5,433 0.81 95.96
18 | 3,019 0.45 96.41
19 | 1,478 0.22 96.63
20 | 896 0.13 96.77
21 | 1,530 0.23 97.00
22 | 475 0.07 97.07
23 | 1,576 0.24 97.30
24 | 1,016 0.15 97.46
25 | 870 0.13 97.59
26 | 717 0.11 97.69
27 | 361 0.05 97.75
28 | 333 0.05 97.80
29 | 141 0.02 97.82
30 | 95 0.01 97.83
31 | 64 0.01 97.84
32 | 5,504 0.82 98.67
33 | 1,965 0.29 98.96
34 | 2,401 0.36 99.32
35 | 2,276 0.34 99.66
36 | 1,223 0.18 99.84
37 | 680 0.10 99.94
38 | 303 0.05 99.99
39 | 60 0.01 100.00
40 | 7 0.00 100.00
------------+-----------------------------------
Total | 668,439 100.00
The distribution is a bit bimodal, with peaks at 6 and 11 mpg improvements; the latter is the most common swap in mpg improvement terms, or to borrow the AP article's reporting style, that's around 9 times more common than F-150 for F-150 trades. Fuel economy improvements of more than 30 mpg over the trade-in vehicle (roughly, trading a very large truck for a Prius) are more common than F-150 for F-150 trades. The 1 mpg minimum improvement likewise was not overly common at 1.51 percent of transactions.
In addition, fuel consumption reductions and stimulus aren't the only potential benefits from the program. While current emissions regulations hold light trucks to the same standard as cars for regulated pollutants (as of 2009, in fact, though notably not [yet] including carbon dioxide), trucks previously were allowed to meet lower emissions standards. All cars and light trucks have been held to higher standards since the mid-1990s as stricter emissions regulations have phased in. Indeed, as the following table shows, fully 30 percent of trades predate the 1994 start of the phase-in for the Tier 1 emissions regulations. New Tier 2 vehicles are much cleaner than pre-MY2003 vehicles, which account for 99 percent of Clunkers trades.
Trade_in_Year | Freq. Percent Cum.
------------+-----------------------------------
1984 | 1,835 0.27 0.27
1985 | 9,703 1.43 1.70
1986 | 10,771 1.59 3.29
1987 | 12,171 1.80 5.09
1988 | 18,537 2.74 7.83
1989 | 23,826 3.52 11.35
1990 | 23,993 3.54 14.89
1991 | 28,036 4.14 19.03
1992 | 32,248 4.76 23.80
1993 | 41,652 6.15 29.95
1994 | 57,145 8.44 38.39
1995 | 66,363 9.80 48.19
1996 | 61,430 9.07 57.26
1997 | 65,955 9.74 67.00
1998 | 65,876 9.73 76.73
1999 | 62,441 9.22 85.95
2000 | 43,758 6.46 92.42
2001 | 29,183 4.31 96.73
2002 | 16,114 2.38 99.11
2003 | 4,472 0.66 99.77
2004 | 1,226 0.18 99.95
2005 | 254 0.04 99.99
2006 | 52 0.01 99.99
2007 | 23 0.00 100.00
2008 | 17 0.00 100.00
------------+-----------------------------------
Total | 677,081 100.00
There's also a cautionary lesson in here investigating large databases. In a 677,000-record dataset, there will be hundreds or thousands of errors unless the data are meticulously cleaned. The AP report takes note of the 145 transactions listed above where the mileage of the trade was no worse than that of the new vehicle, which could indicate frauds against the program if correct. Among the putative horror stories:
A driver in Negaunee, Mich., traded a 1987 Suburban that got 18 mpg for $3,500 toward a new Silverado pickup that got only 15 mpg. An Indianapolis driver traded a 1985 Mercedes 190 that got 27 mpg for $3,500 toward a new Volkswagen Rabbit that got only 24 mpg.The article is correct based on the mpg for the trades as coded in the database. However, other information in the database suggests that the transactions actually may have involved valid fuel economy improvements. The database includes the vehicle identification number (VIN) of the trade, which provides important eligibility information on the cars when decoded.
In the case of the 1987 Suburban, to get 18 mpg it would need to be a RWD model equipped with a 6.2-liter diesel engine. That's what the database record says, but according to the VIN, the Suburban was a 13 mpg gas-engined model. Likewise, the VIN of the 1985 Mercedes is consistent with the car being an eligible 18 mpg gas-engined 190 rather than a 27 mpg diesel 190. In both cases, the database is ambiguous as to the validity of the transactions; if the VINs are correct, then they were allowable.
The Cash for Clunkers program pretty clearly was not designed as an efficient environmental program, and there have been questions as to its efficiency as stimulus, too. However, as its costs are spread over aims of stimulus, reducing fuel consumption (which has costs external to car owners), and reducing emissions pollutants other than fuel consumption-related GHGs, it doesn't have to be. To call it the Worst Obama Program Ever is to go overboard.
[*] Buiter, who takes the line that it's crazy per se to destroy a portion of the capital stock, doesn't carefully consider that automobiles don't just magically produce transportation services; they consume other inputs and emit various wastes doing so.
Rdan
Martin Ford continues his theme in the following post, on comparative advantage:
More on the Looming Structural Unemployment Crisis, and on Comparative Advantage
In my previous post, I suggested that job automation technology might someday advance to the point where most routine or repetitive jobs will be performed by machines or software, and that, as a result, we may end up with a serious structural unemployment problem. I’d like to respond to some of the objections that were raised regarding that idea.
I thought I would start with a response at the Economist’s Free Exchange blog, which said:
… in general I am pretty sanguine about the long-term prospects for continued voluntary employment of humans. Technology isn't free, and even if we arrive at a world where some pieces of technology are better at everything than humans, the principle of comparative advantage nonetheless suggests that people will find work.
The idea is that, since everyone has a comparative advantage in something, just about everyone should be able to find some sort of a job. Thus we can be “sanguine.” Nearly every explanation of comparative advantage I have seen involves either individual people or countries. I haven’t seen examples where machines or automation technology come into play, so I thought I’d take a shot at it here.
Suppose we have a tractor and a team of oxen. Both can be used to plow fields, pull wagons or do other things around the farm. Clearly, the tractor out-performs the oxen in every task. Still, there ought to be some area in which the oxen don’t perform quite so badly relative to the tractor. Maybe the tractor is a little less efficient at plowing smaller fields since it has to make many turns. Or maybe fuel for the tractor is much more expensive in some regions, and so the oxen ought, in those cases, to have some sort of comparative advantage. So why have oxen been completely put out of work in developed countries like the United States?
It seems to me that there are two reasons. First, there is the magnitude of the absolute advantage that the tractor has. A tractor is a disruptive technology relative to the oxen. In order to have a meaningful comparative advantage, it’s probably helpful if you can get fairly close to the competition in at least one area.
The second reason is, perhaps, even more important: tractors, being machines, can be replicated on demand. If we imagine that a shortage of tractors existed, then comparative advantage would work. The available tractors would be deployed in their most productive uses, and the remaining work might well go to the oxen. But, in reality, the farmer can acquire as many tractors as he needs to do all his work, and in fact, he has no choice but to do so in order to remain competitive with other farmers.
As another example, suppose you are a brain surgeon who is also an excellent cook. Now, you might choose to employ a cook who is not quite as good as you are because doing so would free up your time and energy to do more brain surgery. So comparative advantage works there. But suppose you develop a machine (or two machines) with a dramatic absolute advantage in both cooking and brain surgery. Then, you could replicate your machine, and pretty soon there would be no jobs for cooks or brain surgeons.
So it seems like that might be a rule: If an affordable machine (or software algorithm) achieves a dramatic absolute advantage in a job or task, it will most likely be replicated and deployed until all competitors are eliminated. Comparative advantage is not much of a defense against that.
It seems to me that over time (not next week, but over years and decades), machines and software automation applications are likely to achieve that type of dominance in a great many areas, and they will be replicated until they consume all the available work. Any enterprise that failed to deploy this new technology would be less competitive.
All of this, of course, really amounts to nothing more than a restatement of the principle of obsolescence: in the long run, disruptive new technologies don’t find an equilibrium with old technologies. Old technologies get replaced. This applies equally to biological technologies like oxen—and perhaps it will someday even apply to human workers.
That’s an idea that economics is probably not ready to accept. Interestingly, other disciplines like biology or physics don’t give any special status to people. We are assumed to be subject to the same overall rules of nature as anything else. No so, with economics. For economists, people are very special; people are labor, and people get a special “L” in all the equations. Economists assume that people—and not just a few people but the vast majority of available workers—are indispensable to the production process. That has been true historically, but will it always be true?
Then again, maybe I’ve missed something. Maybe there is an area where human workers will always have an absolute advantage: in jobs that require uniquely human qualities or creativity, artistic ability and so forth. A lot of the conventional wisdom seems to suggest that we simply need to retrain, re-educate and redeploy workers into these areas, and everything will be fine. Is that likely to be the case? I’ll look at that idea in my next post.
__________________________
Martin Ford is the author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future and has a blog at Econfuture
Robert Waldmann
is joining The Pigou Club and hopes for at least some discussion in comments.
That is all.
Tom aka Rusty Rustbelt
The Changing Face of Health Care Fraud
Every President since Gerald Ford has campaigned against Medicare and Medicaid “waste, fraud and abuse.” Ditto many people campaigning for Congress.
The primary fraud prevention systems are aimed at providers, with the Office of Inspector General (DHHS – CMS) and the FBI taking the lead on large fraud cases. States are also very active in Medicaid fraud investigations. Providers spend vast sums every year to prevent fraud, usually in the form of compliance plan activity.
The leading presumption is fraud will be perpetrated by providers via double billing, upcoding, kickbacks, and etc., but the face of health care fraud is changing.
Exact numbers are hard to find, but by monitoring several sources it appears non-providers (some mobbed up and some immigrant groups) are combining ID theft and computer driven fraud to suck funds out of Medicare and Medicaid.
60 Minutes did a program recently on phony pharmacies and DME* shops in Miami, and one informant guessed there may be 2000 phony shops in the Miami area alone. Wow.
The key is to do a real credentialing process before issuing a provider ID number. Physicians jump many hurdles to get a number, despite piles of credentialing paperwork, but apparently phony suppliers can begin billing almost immediately.
The feds are still aiming at legitimate providers with the Revenue Audit Contractor (RAC) program. Likely the contractors will find some billing errors at every single provider, sweeping up crumbs while real criminals are abusing the treasury.
*Durable Medical Equipment
_______________________________________
Tom aka Rusty Rustbelt
by cactus
Recently the ex-GF and I were traveling, and we ended up flying on United. I haven’t flown on United in recent years, as it hasn’t been a major carrier in a number of the places I’ve lived recently. Now maybe things have changed since the previous time I was in a plane (a month earlier, Delta Airlines) but it seems to me that United is taking a la carte pricing a bit further than other airlines.
When we went through automatic check-in, we were offered two different choices for upgraded leg-room. We were also charged $20 buck for checking one bag. It wasn’t overweight, it is just that now there is a charge for luggage.
It seems most people on that flight were aware of the $20 charge; overhead compartments were filled up completely, mostly with “carry-on” bags significantly larger than the one piece of luggage we had checked. As a result, a number of people had to check bags at the gate. Now here is the interesting thing… because so many people had to check bags at the gate, and those bags had to be available upon deplaning, none of us were allowed to exit the aircraft until after the bags that had been gate checked were brought up. Because so many people were trying to avoid a) waiting at the baggage carousel and b) paying twenty bucks for a piece of luggage, everyone had to wait longer. Perverse incentives lead to undesirable outcomes.
I don’t think the a la carte pricing is working so well in other ways either. See, on the flight back, I had the seat with the most leg room in the entire plane – I was sitting in the emergency row. And I wasn’t charged extra for it either. See, we had the opportunity to leave early, which means we flew standby. We were literally assigned the last two seats on the entire plane… and nobody who had the opportunity to do so had paid for the upgrade, so the emergency row was all that was available.
My guess is that the perennial problems of the airline industry are self-inflicted, and date back to the period when the industry was deregulated. Until deregulation occurred, prices were set by government fiat, and airlines could only differentiate themselves on quality. After deregulation, they began competing on price. Companies that had previously trained their passengers to believe that flying was a special occasion that merited wearing formal attire retrained their passengers to think about price alone. When you make your product or service into a commodity, prices drop to marginal cost and that means if you have the kind of fixed costs the airline industry does, profits have to go negative.
So… if you were an executive at an airline, what would you do to change the passenger mindset? What can you convince the
____________________________________________
by cactus
(Rdan here...leaving for Chicago this week, and Southwest has an option for $10/person to upgrade to the A line so to speak from B and C lines, which determines when you can board. There is no limit to who can purchase the upgrade to the A line, so there is no guarantee the A line won't include everyone if everyone upgrades, which is allowed to date. It presents an interesting pricing dilemma as well.)
I try to like the NYTimes Economics Reporting. I really do. Heck, any place that publishes Uwe Reinhardt can't be all bad.
But David Leonhardt, as he does often enough that I hesitate to read his work, again goes beyond the pale today, and clearly does so deliberately. The offending paragraph:
Twenty-two months after the start of the mid-1970s recession, real weekly pay was down 7 percent. For the early 1980s recession, the decline was 4 percent. Today, thanks to moderate pay growth and scant inflation, pay is 1 percent higher than when the Great Recession began in December 2007.
Let's (1) remember that wages are sticky and (2) look at this declaration.
Both of the previous recessions are cited as being about 16 months. The current one probably ran 18 for economists's purposes, and is in its 23rd month for the rest of us. But let's give him a pass on that.
Note, however, the careful phrasing at the end of the paragraph: "thanks to moderate pay growth and scant inflation." What does that mean? Well, let's look at the Annual inflation Rate (CPI) for the actual recessions under discussion:
Gosh; quite a difference! I wonder if Leonhardt is aware of it.
A finger exercise below the fold.
Just for fun, let's look at the wage changes over those periods. Now, unlike Leonhardt, I'm not going to use real wages. Let's see if we can figure out what the nominal change in wages is for each of those periods.*
1973-1975 Average Inflation Rate: 10.75. Real wage loss: 7% Wage increase in period: 3.75% (including the residual effects of wage and price controls)
1980-1982: Average Inflation Rate: 7.5% Real wage loss: 4% Wage increase in period: 3.5%
2007-present: Average Inflation Rate: 1.8% Real wage gain: 1% Wage increase in period: 2.8%
I don't know about anyone else, but I wouldn't be celebrating the wage "gains" of the current era. (And let's not even talk about actual wages received, since Barry Ritholz has that territory well-covered and then some).
*If you want to make the case that I should be using real wages, as Leonhardt does, please demonstrate (a) that all wages are renegotiated during a period of inflation, (b) that all parties are able to estimate inflation—even when at relatively unprecedented levels—accurately, and (c) that such negotiations were legally and commercially allowed during the period.
Among the people who have been updating The Theory of Finance for the ObamaNation is Gregg Sommerville, whose job depends to some significant extent on people not believing the following riff:
More music below the fold.
The Bailout Rap
and the Subprime Mortgage Blues
by divorced one like Bush
Well, here is what I'm doing to support the US of A's economy. It's a lesson in the real model of economics. It is a scaled version of the concept of stimulus. I even did it by using financing just to make the model as close to real as possible. (OK, I had to finance it but...I used my credit union.) Yes, I'm driving up the debt, but I'm creating jobs and I'm build wealth.
I purchased locally to assure my bank supplied money (debt) is multiplied as much as possible. When this garage is done, I will have created over a dozen or more jobs directly and who knows how many as the debt money goes from the first exchange of hands (me to who ever) to the second exchange (whoever to whoever's whoever). Notice, that this is all happening via a producer economy not a financial economy. Any rescuing of banks is taking place by moving money into the hands of people first.
I'm even adapting to these hard economic times. I'm looking else where to earn a living. Actually, I'm looking to reduce my expenses by improving the effectiveness of my time. The practice (yes, health care has taken a hit) and the flower shop are slow so I will be honing my mechanic skills and fixing my vehicles my self. 
Alas, there is a down side. The wealthy rent collector will no longer be collecting the rent.
Rdan
Quick look at the new template, unfinished form. Any wishes?
Rdan
David Zetland at Aguanomics had some fun with a lecture and thought exercise.
02 November 2009
The Political Economy of Lobbying
Last week, I taught my students about different auction techniques. After I auctioned four books under different rules, I auctioned $1.00 for $3.75.
Now before you say "WTF?" (or perhaps I am too late!), let me explain.
First, it was an all-pay auction, which requires that all bidders pay their highest bid to the auctioneer, even if they do not "win."
Second, watch this video of the auction (4 minutes! drama! laughter!): (rdan...use this link)
Third, what happened? There were four bidders. Mr. A bid $0.25; Ms. B bid $0.50; Ms. C bid $0.75; Mr. D bid $1.00. Then Ms. B raised her bid to $1.25 before Mr. D won the auction with a $1.50 bid. Mr. D got $1.00, and I got $3.75 ($2.75 net).
Nice money maker, that all-in-auction :), which is why you should see five, below.
Fourth, why did this happen? Consider this:
1.If you bid $0.25 for $1.00, you stand to make $0.75.
2.If someone raises you (to $0.50), you lose that $0.25.
3.If you bid $0.75, then you still make (net) $0.25.
This set of incentives ("on the margin") makes it rational to keep raising the stakes given that you have bid because winning always has a higher payoff than losing. The "right strategy" is, of course to not bid at all. (As Joshua, the computer, says in Wargames: "Strange game. The only winning move is not to play.")
Fifth, all-pay auctions reproduce the dynamics of political lobbying in which the politician is auctioning the wording to some law, and lobbyists from both (many?) sides are contributing money, perks and attention to get their version of the law. All of the lobbyists pay, but only the politician wins.
Oh, and we lose as well. A politician who represented "the People" would write a law that maximized the positive change in social welfare, regardless of lobbying.
Bottom Line: Politicians benefit from lobbying; lobbyists compete to receive our money and rights; and citizens suffer. [I could soften this language to "some politicians" or "sometimes," but I these are structural institutionalized flaws.]
Robert Waldmann
I am eager to learn from this blog again. A problem with solar and wind generation of electricity is the sun isn't always shining and the wind isn't always blowing and it is costly to store energy. I don't see why energy can't be stored using hydroelectric dams. They store huge amounts of energy in lakes. So what's the problem. More thoughts after the jump.
OK problem number one is that the hydroelectric plants are where they are not where we want electricity. This means that a national power grid which doesn't waste energy would be needed. I think that means very high tension direct current.
Such capacity would also be needed to use wind power much at all as the windy states are sparsely populated. I assume the problem is solvable and that the cost is not prohibitive.
A second problem is that the peak capacity of hydroelectric power plants would have to be increased. If they build up water during the day and release it at night, then they have to be able to convert the large flow to electricity. Dynamos would have to be added in some way. Now I Imagine that this can't be all that costly. I think of a huge siphon or a tunnel or a channel. Am I demonstrating my ignorance of engineering.
by Bruce Webb
Divorced One and I are having what I think is a useful exchange that started with my post on Eligibility and Enrollment which he followed up with More on the Public Option. If you haven't read that please do as this piece won't make much sense otherwise.
DOLB and I now agree that employees can opt-out of employer paid coverage and enroll in the Public Option. The key to entry to the PO is to not be ENROLLED in an employer plan. Now clearly there are ways to decline or drop employer paid coverage today. For example if you are retired military and covered under Tri-Care you don't need to accept coverage, or if you get married to someone with a family plan you can drop coverage, at worst you would have to wait until the annual Open Enrollment period. There is nothing in ether current law or this proposed legislation that binds you to the employer plan. On the other hand the system is set up as 'opt-out' rather than 'opt-in', if you accept a job with employer coverage and for whatever reason (perhaps you are a Christian Scientist) refuse to sign up for a plan option the employer is authorized to auto-enroll you in the lowest cost plan. But you can, if you choose take positive steps to opt-out of such coverage. So why does CBO project that so few people will choose to opt-out of employer coverage and into the Public Option? Well you would have to ask them, generally CBO doesn't discuss its specific methodology, but the answer seems to be that on their calculations such a choice would not be financially advantageous to the worker. This was explained in a response of a congressional staffer to DOLBs email question:
Any individual (but not any employer) can participate in the Exchange and therefore could sign up for the public option. BUT, to do so, they would have to dis-enroll in their qualifying coverage and meet the other requirements necessary to participate in the Exchange. However, there is zero incentive for anyone to do this since they’d be responsible for 100% of the cost of the care they chose in the Exchange. If they stuck with their employer sponsored or other qualifying care, the vast majority of the cost of coverage is picked up by someone other than the individual. That’s why so few people are projected to enter into the public option. Additionally, access to the Exchange, and the public option, IS restricted for employers. Only the smallest businesses can use it at first, and later slightly larger businesses. The Secretary can then choose to open it up to all employers if she feels the Exchange has the capacity to handle that. The goal is to do so.Under Sec 411(3) Employers whose employees opt-out of coverage and enroll in an exchange plan, including the PO, have to pay a fee, but according to the congressional staffer the money does not explicitly follow the employee. So where does it go? What does it pay for? And there seems to be only one answer, one discussed below the fold.
The flat fee paid by employers for each opt-out employee goes into the general pot that funds individual affordability credits for Exchange Eligible employees which in this case includes the opt-outs. The rules governing affordability credits are laid out in Title III Subtitle C based on Income Determinations set out in Sec 345. Under the bill if you make more than 400% of Federal Poverty Level you are not eligible for affordability credits. Which means that any opt-out in this category would indeed be stuck with 100% of the cost of an Exchange Plan. But people earning between 150% and 400% of FPL would be eligible for affordability credits on a sliding scale. The question would be whether there are any circumstances under which the value of those credits exceed the value of the employer contribution to the employer plan. CBO seems to be calculating that in most cases the answer is no, the premium limits on those employer plans established in the bill being enough to maintain a rough parity between out of pocket costs between and individual plan under the Exchange and an employer group plan with enough advantage to the latter to keep employees from jumping ship. And maybe they have the balance right.
So when the staffer said that opt-out employees are stuck with 100% of the cost I think it was not quite right, if you are an Exchange Eligible Individual you are eligible for sustainability credits which reduce your cost. But per CBO not enough to actively induce large-scale opting out. Meaning that while everyone is theoretically ELIGIBLE for the Exchange, relatively few people will choose to ENROLL.
It took me many years to understand the phrase "moral hazard." It's a fundamental tenet of economics, usually used to explain that, since consumers are untrustworthy, businesses need to charge them more.*
It was finally cleared up for me in the midst of a presentation last year about how it's a "moral hazard" issue that divorce rates go up as more women work outside of the house/family business. So I asked the presenter, "You mean it's a moral hazard issue that women who have an independent income can now get out of an abusive relationship?"
Fortunately, one of the best Labor Economists in the world was in the room. He just looked up and said, "Or guys start leaving their wives because the wife can go to work now."
Aha! The light dawns: moral hazard is, indeed, about power relationships: it allows arseholes to be even greater arseholes. (One step further, and you start spouting Ayn Rand.)
Preceding is preamble to correcting an error made by a worker in today's Phialdelphia Daily News (h/t Dr. Black, of course):
Yesterday, Local 234 President Willie Brown said that the wage package was acceptable but that he was worried about the underfunded pension fund, funded only 52 percent. He said he believed that SEPTA had not contributed to it for 10 to 12 years....
"We could wake up and our pension could be completely gone," [Brown] said. "We don't want to end up like AIG," referring to the international insurance giant who got $173 billion since last fall in a U.S. government bailout.
Mr. Brown should not worry about that. AIG's creditors (e.g., The Great Vampire Squid) were paid in full, because Tim Geithner and Larry Summers want a veto-proof Republican majority by 2012, if not 2010.**
Pensioners, otoh, are subject to "moral hazard." Believing their contracts were viable, reasonable, and negotiated by people who were working in the best interest of the firm—that is, people who were not writing a check with their mouth that their pockets couldn't cash—clearly causes them not to do enough to save. Because they don't understand that mismanagement of their pension is their fault, and that the Pension Benefit Guaranty Corporation will only ensure that their pensions will be paid "up to certain limits," no matter how much extra Roger Smith or Michael Eisner or Jack Welch took from the company for performing almost as well as the rest of the stock market.
So, let us say to Mr. Brown and the rest of the workers who depend on their pensions being funded: Don't worry about being treated the way AIG was. You're going to be dealt with as a "moral hazard" problem for believing that the contract you negotiated will be enforced.
Why, if those workers were at all sensible, they would have taken the money upfront the way those Captains of Industry did, instead of gotten a false sense of security ("moral hazard") from contractual negotiations about future payments.
As noted by Dr. Black, while management claims that they are fulfilling their legal obligations, management's pension fund is almost 25% better funded than the workers fund (53% v 65%).
This is, of course, A Good Thing. After all, we wouldn't want workers to believe that what they think of as Contractual Obligations is anything other than a case of "moral hazard."
UPDATE: I see, via David Wessel's Twitter feed, that Ricardo Caballero puts forth standard Economics Reasoning:
His idea is likely to give heartburn to many economists and policy makers, who worry about “moral hazard” — the idea that if financial institutions know they’ll be saved in an emergency, they’ll take even greater risks that will inevitably lead to greater disasters.
Don’t fret, says Mr. Caballero: “this moral hazard perspective is the equivalent of discouraging the placement of defibrillators in public places because of the concern that, upon seeing them, people would have a sudden urge to consume cheeseburgers.”
After all, we just have to acknowledge that "moral hazard" exemptions are the rule, not the exception, for mismanaged businesses. After all, paying out more in bonuses than you make in a year is a Perfectly Reasonable Business Strategy.
*Seriously. The standard example is that people "don't tell the whole truth" on health insurance applications, so companies need to charge them more. The logical extension of this is that people who tell the whole truth are leaving money on the table, since no insurance company would ever take an ex poste action against people who omit or forget that sprained ankle from thirty years ago. For an alternate view, see Malcolm Gladwell.
**There may be an alternate explanation, but this one requires the fewest outlandish assumptions.
By Spencer,
The unemployment rate jumped to 10.2%. Except for the peak rate of 10.8% after the 1982 recession this is the highest in the post WW II era.
The overall tenor of the report was very similar to the past three months reports and sent the message that the economy is no longer collapsing as it was earlier this year, but it is still in a recession. The encouraging news in the report was that temporary employment improved and that manufacturing hours worked and averge work week improved. This implies that the recession may be over in the manufacturing sector, but not in the service sector.
Because service employment is about 112.5 million versus 11.7 million in manufacturing the improvement in manufacturing was swamped by the continued fall in services. Consequently, aggregate hours worked fell 0.2%. This is similar to the numbers in yesterday's productivity report and implies that fourth quarter productivity will also be strong with all that implies for
weak employment.
Average hourly earnings did improve, as both average hourly earnings and average weekly earnings rose by 0.3%. But with oil up about $10 last month this is unlikely to generate an improvement in real wages or income. On the encouraging side, maybe the past years actual decline in nominal personal income growth may be ending.
lifted from comments by run 75441
These are comments that I found interesting describing change to manufacturing processes over tha last few decades. It made for a foil next to Martin ford's projections and our understanding of past events. It is not a post but I learned a few things.
"The key example is stamps for bashing metal which shape metal into one form." from Robert's post on
.....made me smile.
No one buys a stamping press that will make only one part. Stamping companies do buy stamping tooling (that die going into the stamping press) for a particular part. It is very possible to dedicate a stamping press to one part given the capacity of the machine and the volume of the part; however, different tooling can still be inserted into the stamping press dependent upon the machine's bed. There is flexibility to buying a stamping press and it can be used for various parts, even in Henry Ford's days. There is also flexibility to the stamping tooling by buying progressive dies which will do multiple operations in one press.
There has also been an evolution from manual machines and automatics to NC and CNC machines over the years. Let’s talk about throughput first though. Everyone is familiar with Henry Ford's assembly line were the vehicle in some form of assembly moves down the line. At each station, another part is added until the end when the car is complete. This type of assembly is still being used. What most people didn't see was the departments of machines (annealing, stamping, grinding, deburring, welding, turret lathes, automatics, drill presses, etc.) dedicated by function and not by flow of parts to supporting that assembly line These departments were not dedicated to the flow of a part through the plant the same as one might see in the assembly of a car. Each of the departments could be located in the corners of the building creating distances of transportation, requiring multiples of forklifts and labor to move parts from one operation to another, to stock eventually, and then from stock to final assembly (not including the multiple amounts of part inspections).
Magnify this by economic order quantities determined by Demand (months or weeks), Machine Setup (manuals and automatics setups were frequently measured in shifts), etc. It was used to determine a hopefully optimum inventory manufacturing lot based upon constants such as purchasing cost, carrying cost, fixed lead times, demand; which all of them at one time never were constant. The supply chain from customer order, to 100% of the Lot order, and going out the door could be months long . . . i.e. a casting having a 12 week lead time, through, 8 weeks long, etc. There was also a constant battle between Manufacturing, who wished to optimize setup, and typically Materials hoping to optimize inventory (unless they were into build it to be safe mode).
You have a factory setup by machine function rather than throughput and the functions scattered through the plant. Is it is any wonder why, there was a huge requirement for Labor to move parts, to operate each of the machines by function, have excessive transit distances, and manufacturing times plus lead times??? A part processing spaghetti farm. Using Pareto analysis of the flow of parts through a factory from the routing of operations to make a part, it is, and was entirely possible to achieve a much more efficient layout of a factory by eliminating machine departments by function, layout the shop floor by major part flows from receiving to shipping, and in the end reduce internal transit time and labor required, improve throughput and delivery, and reduce EOQ for a part until manufacturing whined about "setups." All of this could be achieved without buying one CNC machine. It is the process of manufacturing that can make a huge difference.
So what did the CNC and or NC machine do for manufacturing? It combined operations such as drill, threading, boring, and lathe. No longer did a company need a drill press, lathe, etc functionality except for alternative runs, because all of those operations were resident to one machine. With tooling for each function resident to the machine; setups were reduced, and again there was a reduction of setup, machine, and forklift operators. It also cut down on the size of the plant needed as all of the operations were resident to one machine instead of taking up valuable floor space. The only thing it didn't impact was inventory as people like that “feelie-feelie” type of safety in it rather than rely upon capacity and speed of throughput.
I am going to disagree a little with your take on implementing new product or new parts. I would suggest it happened consecutively with the running of old product. While it is true that brown field analysis and change over of the shop floor might be disruptive, it was typically planned for and the necessary inventory laid aside to handle demand. In turn the plant people were used to move machinery around. In the end, the changes were implemented on weekends, holidays, Christmas shutdown, Summer shutdowns, etc.
Is it capital equipment or is it a process called kanban impacting throughput? Kanban doesn't have an outlay for its implementation other than to change the way we think about making parts and product, one part or product at a time, in the smallest increment of inventory possible, and correctly each time. It doesn't even require computerization (internally) to implement as it is a pull type system rather than a push or build to forecasted demand system. In each operation, the inventory, wait time, operation time, and transit time is minimized. Is the success of Toyota based upon CNC equipment or is it in the process of manufacture itself? You give way to much credit to computerization of machines. There is something else a brewing and I liked Spencer's explanation.
There was a time when one spent a lot of time as an apprentice to operate a lathe or to be a tool and dye maker. You are right; this is a vanishing "skilled" capability. Instead we rely upon computer cad cam to image parts and then apply the correct operations needed to shape the part in a Mazak or Cincinnati Milacron CNC. It does not occur quite a quick as you state does; but, it certainly is another consolidation point of various operations.
I consulted at a company called Miami Industries (taken over) in the glorious town of Piqua. I lived in MadCity WI and spent much of my time consulting in Ohio. They were meeting much of their customer order lead times when demanded of them; but, they had difficulties doing so. The process was simple (as I recall): slit and cut flat stock (came in rolls), draw over mandrill and weld, burnish outside to eliminate welding burr, cut to size, bend to shape, plate or coat. The company wanted to know how to improve delivery.
At 30-someting and looking like doogie-howser, I got no respect and always had an older consultant with me (colonel sanders this time). I went on the plant tour and listen to their spiel. They ran monthly lot sizes (20 day, 5 days/week) and wanted to improve deliver to weekly from whatever it was . . .
I looked at the VP of Manufacturing and said; with a 20 day manufacturing lot size, you are averaging 10 day deliveries on any order. "Oh no, we can get then out in 5 days if needed." Yes, but the average is 10 days. Given the size of the Manufacturing Lots planned from the customer orders accumulated, the company having an average throughput of 10 days made sense. If they wanted to improve delivery, than cut the lot sizes to 10 days from 20 days which would increase the turns of the orders on the shop floor. It would be a start towards a much quicker throughput, less inventory on the floor and in stock on either end, and improved delivery.
"We can't do that because of the setup." Change your setup by making it more efficient with tooling resident to the machine, handles instead of nuts and wrenches, and look at the costs of inventory as opposed to setup, etc. The excuses for not doing something were endless and this change did not involve one new piece of capital equipment. I have another word for them; but for now I will settle for . . . "whims." Oliver Wight used to call them “cement heads.”
The whole issue revolved around lot sizing. I set out to prove how silly they were and that my average of 10 days was spot-on. They had a shop floor system that collected data on each operation. I was able to look at each Mandrel and ascertain the amount of time for a lot to clear it, the setup times involved, the start of the next operation and total time, and transit times between operations. 75% was sit around time waiting for the operation, 8% was transit time, 10% was setup time and the balance was actual operational time making parts. Oh, an average lead time varied from 9.3 to 10.1 days for an order. Not only was my quoted average correct; but, there was adequate cost savings to be had in inventory reduction to also justify the change. I was hated . . . the life of a throughput analyst! Don’t chase technology for technology sake.
Rdan
Martin Ford offers one man's look into the future of a world in the USA of the results of continued increasing productivity, increasing income inequality, declining wage compensation, and consumption supported by debt.
Robert touched on the issue recently, and Sandwichman has developed a range of thoughts on labor at Econospeak. One post cannot handle the complexities, but here is a start to the conversation.
Could Advancing Job Automation Technology Cause Structural Unemployment?
The unemployment situation is looking increasingly dismal. Is it possible that there's something going on that no one wants to acknowledge?
There can be little doubt that computers, robotic technologies and other forms of job automation have been getting far more capable and that as this trend continues, more workers are certain to be displaced in the relatively near future. Most economists dismiss any concern that this might lead to long-term structural unemployment. At the risk of being labeled a "neo-Luddite," I'd like to explore this issue a little further.
I think I can make a fairly strong argument that a very large percentage of jobs are, on some level, essentially routine and repetitive in nature. In other words, the job can be broken down into a discrete set of tasks that tend to get repeated on a regular basis. It seems likely that, as both hardware and software continue to advance, a large fraction of these job types are ultimately going to be susceptible to machine or software automation.
I'm not talking about far fetched science fiction-level technology here: this is really a simple extrapolation of the expert systems and specialized algorithms that can currently land jet airplanes, trade autonomously on Wall Street, or beat nearly any human being at a game of chess. As technology progresses, I think there is little doubt that these systems will begin to match or exceed the capability of human workers in many routine job categories--and this includes a lot of workers with college degrees or other significant training. Many workers will also be increasingly threatened by the continuing trend toward self-service technologies that push tasks onto consumers.________________________________________
One of the most extreme historical examples of technologically induced job losses is, of course, the mechanization of agriculture. In the late 1800s, about three quarters of workers in the U.S. were employed in agriculture. Today, the number is around 2-3%. Advancing technology irreversibly eliminated millions of jobs.
Obviously, when agriculture mechanized, we did not end up with long-term structural unemployment. Workers were absorbed by other industries, and average wages and overall prosperity increased dramatically. The historical experience with agriculture is, in fact, an excellent illustration of the so-called "Luddite fallacy." This is the idea--and I think it is generally accepted by economists--that technological progress will never lead to massive, long-term unemployment.
The reasoning behind the Luddite fallacy goes roughly like this: As labor-saving technologies improve, some workers lose their jobs in the short run, but production also becomes more efficient. That leads to lower prices for the goods and services produced, and that, in turn, leaves consumers with more money to spend on other things. When they do so, demand increases across nearly all industries--and that means more jobs. That seems to be exactly what happened with agriculture: food prices fell as efficiency increased, and then consumers went out and spent their extra money elsewhere, driving increased employment in the manufacturing and service sectors.
The question we have to ask is whether or not that same scenario is likely to play out again. The problem is that this time we are not talking about a single industry being automated: these technologies are going to penetrate across the board. When agriculture mechanized, there were clearly other labor intensive sectors capable of absorbing the workers. There's little evidence to suggest that's going to be the case this time around.
It seems to me that, as automation penetrates nearly everywhere, there must come a "tipping point," beyond which the overall economy is simply not labor intensive enough to continue absorbing workers who lose their jobs due to automation (or globalization). Beyond this point, businesses will be able to ramp up production primarily by employing machines and software--and structural unemployment then becomes inevitable.
If we reach that point, then I think we also have a serious problem with consumer demand. If automation is relentless, then the basic mechanism that gets purchasing power into the hands of consumers begins to break down. As a thought experiment, imagine a fully automated economy. Virtually no one would have a job (or an income); machines would do everything. So where would consumption come from? If we're still considering a market (rather than a planned) economy, why would production continue if there weren't any viable consumers to purchase the output? Long before we reached that extreme point of full automation, it seems pretty clear that mass-market business models would become unsustainable.
One of the things that concerns me the most about this scenario is the potential influence of consumer psychology. If at some point in the future consumers look out the window and see a landscape where jobs are relentlessly getting automated away, and if it appears that getting additional education or training provides little protection, there's likely to be a significant negative impact on consumer sentiment and discretionary spending. If we someday get into a reinforcing cycle driven by fear of automation, a very dark scenario could ensue. It's difficult to see how traditional policies like stimulus spending or tax cuts would be effective because they wouldn't address consumers' concerns about long-term income continuity.
Most economists will likely object to my arguments here as speculative and lacking in objective data. I think that if you look at issues like stagnating or declining wages for average workers, growing income inequality, increasing productivity, and consumption supported by debt rather than income, you can certainly find evidence that generally suggests we might be approaching that "tipping point" where structural unemployment is going to become a problem. However, it seems unlikely that an econometric analysis of past data is going offer clear support for this theory--and if it ever does, it will be very late in the game.
I wonder about the wisdom of the extreme emphasis on quantitative data analysis that seems to characterize economics. Should we really steer the ship exclusively by focusing our telescope on the wake? There might be an iceberg ahead.
Martin Ford is the author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future.
by Divorced one like Bush
Bruce Webb put up a post titled "Health Care Exchange: Eligibility vs. Enrollment". I have gained some clarification on the subject and have shared it with Bruce. I have asked him to comment also.
There is a concern as to whether access to the Public Option (PO) was limited. Bruce's reading of the bill was that everyone has access to the PO based on section 411(3) which reads:
3) CONTRIBUTION IN LIEU OF COVERAGE.—
Beginning with Y2, if an employee declines such offer but otherwise obtains coverage in an Exchange- participating health benefits plan (other than by reason of being covered by family coverage as a spouse or dependent of the primary insured), the employer shall make a timely contribution to the Health Insurance Exchange with respect to each such employee in accordance with section 413.
Thus, the PO is not as restricted as people thought and in the future the possibility is that it could grow and be what people are saying it would be; a force for controlling costs, especially regarding insurance premiums. Sounds good, no?
My reading was that section 411(3) was tied in some way to whether your employer was "exchange eligible" or not. There are provisions that would allow all employers in the future to be exchange eligible but it is dependent on a report or two being produced and then the "commissioner" acting on the report or congress acting on the report. To me, this leaves too much political wiggle room.
I think we both assumed that exchange eligible or not, if the employee chose the PO, the employer would have to pay for the choice by paying into the exchange, the result being that the cost to the employee would be the same regardless of what decision said employee makes.
Well, Bruce was correct. Everyone has the option to choose the PO. Though there is a financial barrier. A big financial barrier that in my opinion makes this bill crap. I'll post my thoughts more on this later.
I contacted my congress person's office. They put me in touch with their legislative person. I asked this person (via email) which of us were correct.
Turns out, as noted, Bruce is correct that everyone has the option for the PO. However, if you make this choice in lieu of accepting one of the employer provided options you, my friend are on your own. You are on your own and will have to accept the total cost of the PO plan because the payment your employer makes into the exchange does not follow you.
The reason given for such a set up in the house bill is that there is concern that the employers would push their employees into the exchange. The legislative person noted that HR 3962 specifically is attempting to discourage this.
This is the essential two responses by the legislative person:
Any individual (but not any employer) can participate in the Exchange and therefore could sign up for the public option. BUT, to do so, they would have to dis-enroll in their qualifying coverage and meet the other requirements necessary to participate in the Exchange. However, there is zero incentive for anyone to do this since they’d be responsible for 100% of the cost of the care they chose in the Exchange. If they stuck with their employer sponsored or other qualifying care, the vast majority of the cost of coverage is picked up by someone other than the individual. That’s why so few people are projected to enter into the public option. Additionally, access to the Exchange, and the public option, IS restricted for employers. Only the smallest businesses can use it at first, and later slightly larger businesses. The Secretary can then choose to open it up to all employers if she feels the Exchange has the capacity to handle that. The goal is to do so.
I then asked: 411(3) notes that the employer has to make a contribution to the exchange following the rules of section 413 if the employee chooses to get health care via such. How does this square with your statement that the employee would be 100% responsible for the cost of the exchange coverage? Is the employer contribution not tied to their employee's choice? That is, the employer is just simply being charged as a participate in the over all exchange pool to provide the exchange money and thus the payment is not an offset of the cost incurred by the employee to purchase coverage from the exchange?
There response:
Exactly—money does not follow the person in the House bill. The Senate Finance bill does attempt to have the money the money follow the person I believe, but that gets complicated and provides a potential incentive for employers to try and push employees into the Exchange, which is expressly discouraged in HR 3269.
This is a link to a section by section synopsis of the bill.
By Spencer,
Third quarter nonfarm productivity rose at a 9.5% annual rate as output rose 4.0% and hours worked fell at a 5.0% rate. Historically, productivity has been a very good leading indicator of real GDP growth lagged two quarters.
Productivity is also highly cyclical and the first year of a recovery typically experiences the strongest productivity growth.
Compensation jumped to a 3.8% annual rate, but on a year over year basis it is only up 0.5%.
Consequently, the year over year change in unit labor cost was -5.2%, the largest drop in recent years. With productivity growth this strong and such weak compensation growth it is hard to see how anyone can be seriously concerned about a resurgence of inflation. Except for oil, even surging commodity prices would not have a significant impact on the overall price level since they account for such a small share of final prices. Moreover, since potential GDP is a function of productivity growth and labor force growth the argument that the very large GDP gap is overstated does not seem to hold much weight as long as productivity growth is so strong.
I also updated the chart on Labor's Share to show that this trend is actually accelerating.
Rdan
Steve Waldman at Interfluidity has written an impression of The financial blogger meeting with senior Treasury officials of last Monday. He also provides links to other main posts by those who attended. It is worth a visit.
by Bruce Webb
Last evening the CBO Director Blog announced the release of a score of the Boehner amendment: A Preliminary Analysis of a Substitute Amendment to H.R. 3962, the Affordable Health Care for America Act. The results are not impressive: (as always click to enlarge)
The amendment is scored at reducing the deficit by $68 billion over ten years. I can't get the breakdown to add up (see page 4) but most of the savings is in the form of malpractice reform at $54 billion with further savings from some administrative changes relating to electronic transfers and adoption of the Eschoo Biologics Amendment all of which offsets a whopping $8 billion net actually spent to expand coverage. So what do we get from spending an average of just around $800 million a year? Essentially nothing, CBO projects that the percentage of the legal non-elderly population without health insurance will stay right at 83%.
I suggest the words 'Epic fail' apply here. Heckuva job Johnnie!
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Update: Lifted from comments on last post. The GOP's Health Care Plan
By: Dirk van Dijk, CFA Dirk provides a nice analysis of the other provisions of the bill beyond the cost and coverage numbers.
Rdan
The National Academy of Social Insurance report on options for Social Security is public and now available in pdf form. "The purpose of this report is to help analysts and policymakers consider options to bring Social Security into long-term balance in ways that also address concerns about benefit adequacy."
One cannot simply glance through such dense material and numbers, but I did find the following on page 14 (or actually page 20 of 44 pdf form). (the exact numbers have been changed from the proposal by NASI, but are faithful to the process):
From page 14:
Option #7c: Schedule a Very Gradual Contribution Rate Increase Over 20 Years. To avoid abrupt changes in Social Security contribution rates, this option would schedule very gradual increases in the Social Security contribution rate (one-twentieth of one percent per year over 20 years for employees and employers, each), beginning in 2015. By 2035, the Social Security rate would be 7.2 percent for both workers and employers. In 2015, the increase for an average earner making $53,085 then would be $26.50 a year, or about 50 cents a week. It would reduce the 75-year deficit by 1.39 percent of taxable payroll or by about 69 percent. Dale Coberly, a frequent commenter on Social Security, recommended a gradual tax increase of this sort (Coberly, Larson and Webb 2009).11
Footnote also on page 14 of the NASI report:
11 Dale Coberly is a student of Social Security policy and frequent commenter on Social Security via the blog Angry Bear. Angry Bear was named one of the top 25 independent economic blogs on the Internet by the Wall Street Journal and TimeCNN. Coberly, Arne Larson and Bruce Webb collaborated on a modified version of this option in their Northwest Plan. For details of the Northwest Plan, see “The Angry Bear Social Security Series” at http://bruceweb.blogspot.com/2008/08/angry-bear-social-security-series.html.
Like many contributors not in the spotlight the hours devoted to creating material to even be noticed, then evaluated, and then published is a testimony to hard work, due diligence, and a non-profit motive. The weekend hours and midnight oil burned by NASI personnel and contributors is rarely noticed by media, nor appreciated by recipients. Many of us talk about 'they'....well, meet three. Best to Bruce, Dale, and Arne.
Common Sense Health Care Reform and Affordability Act
Haven't begun to read it. And somehow it is in a format that doesn't allow cutting and pasting the text. So I am just throwing this out to the floor for open discussion in comments.
Rdan
Yves Smith describes a meeting she attended at Treasury in D.C. Read at her place or the rest under the fold.
The Treasury invited a small group of bloggers for a “discussion” with senior officials on Monday. Initially, the meeting was to be background, which is a sort of journalistic “FYI but you can’t use it” but we were told at the meeting that we could discuss the meeting as long as remarks were not attributed to particular individuals.
None of us knew in advance how many attendees there would be; there were eight of us at a two-hour session, Interfluidity, Marginal Revolution, Kid Dynamite’s World, Across the Curve, Financial Armageddon, Accrued Interest, and Aleph (and of course, others may have been invited who had scheduling conflicts). There was a place card for Megan McArdle as well.
I was surprised that the powers that be would bother with financial bloggers, and I wondered at the decision rule behind the selection (besides wanting a mix, particularly from a political standpoint). This was also not an anonymous briefing of the sort that has come under criticism (but the anonymity request is still peculiar; is this a Team Obama fixation?) Given that the efforts have Administration has been made efforts to bring critics from the left into the fold, I was wary of attending (I’m not keen about the idea of being propagandized) and expected a higher control format (10-15 people, which would have limited the opportunity to interact).
It wasn’t obvious what the objective of the meeting was (aside the obvious idea that if they were nice to us we might reciprocate. Unfortunately, some of us are not housebroken). I will give them credit for having the session be almost entirely a Q&A, not much in the way of presentation. One official made some remarks about the state of financial institutions; later another said a few things about regulatory reform. The funniest moment was when, right after the spiel on regulatory reform, Steve Waldman said, “I’ve read your bill and I think it’s terrible.” They did offer to go over it with him. It will be interesting to see if that happens.
Four of us had a drink afterward and none of us felt that we learned anything (not that we expected to per se; if the ground rules are “not for attribution” in an official setting, we are certainly not going to be told anything new or juicy). But my feeling, and it seemed to be shared, was that we bloggers and the government officials kept talking past each other, in that one of us would ask a question, the reply would leave the questioner or someone in the audience unsatisfied, there might be a follow up question (either same person or someone interested), get another responsive-sounding but not really answer, and then another person would get the floor. The fact that the social convention of no individual hogging air time meant that no one could follow a particular line of inquiry very far.
My bottom line is that the people we met are very cognitively captured, assuming one can take their remarks at face value. Although they kept stressing all the things that had changed or they were planning to change, the polite pushback from pretty all the attendees was that what Treasury thought of as major progress was insufficient. It was instructive to observe that Tyler Cowen, who is on the other side of the ideological page from yours truly, had pretty much the same concerns as your humble blogger does.
It was also striking to see that the Treasury officials lacked a vision for a banking system for the 21st century that was materially different that the one we have now. The flip side is if they did, articulating that publicly might get them accused of doing Communist central planning, but I didn’t hear second level arguments that said they had considered the issue in a serious way, save not winding the clock back to much more on balance sheet intermediation, aka traditional banking, as opposed to “market based credit”. Nevertheless, at a McKinsey alumni meeting months ago, a partner who has been advising the Treasury and Fed told the group that the Administration wants to make being systemically important very costly to force firms to do what is necessary to get out of that category. That of course is structural reform, but we got no acknowledgment of that as an aim. And aside from raising capital requirements more for big firms than smaller ones, it is not clear how far Treasury could go down that path on its own (and strictly regulatory measures can be rolled back by a new Adminisitration).
Several of us raised questions about whether what their vision for the industry’s structure was and that the objective seemed to be to restore the financial system that got us in trouble in the first place. The answers instead focused on more stringent regulations, higher capital levels, and of course the derivatives regulation bill. I tried twice to engage them on how the bill has so many loopholes that it is not going to make any difference as far as the real problem is concerned (the out for customized derivatives, in the Administration proposal, gave the industry an easy and obvious way to evade the rules; the House pretty much gutted what was left) but I was not specific enough in saying what “loophole” constituted and was basically deflected (and was also told the derivatives on balance sheet would be subject to tougher capital requirements, and the industry was complaining that the bill would make things more costly for them. Ahem, it has become standard practice of all the powerful lobbies to make a great deal of noise about any change on principle, so the level of complaining is not a valid indicator of the efficacy of reform).
I also asked about the size of the financial services industry (as in one of the distortions that resulted from deregulation and rates being too low was that the financial sector had grown too large, which by implication means it needed to shrink. I was told it had shrunk and that the Fed was winding down its programs. Yes, but the expectation is that as the Fed winds down, the private markets will step into be breach, which means more credit private credit extension. There was no acknowledgment of the issue raised by Joseph Stiglitz, that if credit intermediaries are making too much money, the banking system tail is wagging the economic dog.
They also defended the stress tests as being serious, and again did not seem to win converts.
One area that we didn’t get into was the special resolution regime, which is receiving considerable pushback from Congress. Treasury has asked for open-ended authority to resolve large financial institutions, which is pretty much a blank check. That’s a breathtaking power grab by the Executive and should not be acceptable in a democracy. It wasn’t surprising that post the TARP that Congress would be completely unwilling to go there. Any decision to wind up a large bank is going to require Congressional authorization; the amounts at stake are too large for this not to be a political decision. The Resolution Trust Corporation working capital needs ($50 billion, if I recall correctly) were authorized by Congress, and Congress also became impatient and called for it to be wrapped up sooner than Treasury wanted (some studies have argued that the faster sales that resulted gave the taxpayer a lower return than the RTC would have gotten otherwise). And even if you could solve the political impasse (remember, Bear failed in ten days; think Congress could agree to a big backstop in that short a period of time?) I am not certain this change will be salutary in the absence of trading counterparties knowing exactly what would happen to them while an organization was being wound down. One of the things that makes securities firms decay quickly is that no one wants to have their accounts frozen, as happens now in a bankruptcy. You need considerable detail on mechanics, and it does not appear to have been disclosed yet (my buddies at the Roosevelt Institute conference on Monday said Rodgin Cohen, who was presenting and advocating the Administration plans, was also scarce on details).
But the other fact is that these guys are very smooth, very smart, and seemed quite sincere, which made it difficult to discern how much they really did believe and how much of what they said they had to say because they need to defend official policy and maintain confidence. Let’s face it, they get prodded and roughed up by big dogs with some frequency. There was nothing we asked that would be new. They’ve covered this ground with other people of more consequence and therefore have answers ready. We are a pretty unimportant audience (yes, they did bother making time for us, but let us not kid ourselves on how far down the food chain bloggers are) and we cannot argue from a position of advantaged information, so it was inevitable that we would not get beyond standard responses.
by Linda Beale
Part of the reason for our ongoing Great Recession is that we have had so many measures in the tax code to favor home ownership that (i) banks started to think of mortgage securitization business as money growing on trees and (ii) homeowners started to think of their homes as money-growing trees. The bubble burst when the whole house of cards almost came tumbling down--it was revealed that banks had lent money through sub-prime mortgages to people who couldn't afford to make the payments, that people were hoodwinked into getting subprime mortgages (at higher costs) that could have afforded a regular mortgage, that house prices could not just keeping climbing.
Nobody liked the way the "market correction" worked--foreclosures, evictions, job losses and home losses heaped on top of each other. Made especially bad when banks foreclosed on individuals for falling short on payments, refused to accept "short sales", and then ended up letting the houses deteriorate and selling them for much less in foreclosure sales. Made worse when we watched the bailout drama unfold, with investment banks and companies like AIG (investment banks' friendly insurer and credit default contract counterparty) saved with trillions of dollars of federal tax money on the line, while home foreclosures for ordinary people continued.
Congress couldn't get the will to pass a bill to permit modification of home loans in bankruptcy--the one bill that would have done the most to save current homeowners from losing their homes and the social/economic disruption such a loss causes.
But somehow it managed, as part of the economic stimulus bill, to pass a tax cuts to encourage people to buy homes who hadn't owned one before. I thought that bill was problematic from the beginning. First, it was not an ineffective stimulus, in that it was not as effective as, and much more costly than, permitting mortgage loans to be modified (i.e., principal to be reduced) in bankruptcy. Second, it was not fair--those who'd bought homes earlier and were now struggling with underwater mortgages got no help, but someone who managed to put together a deal made possible by the many foreclosed properties would also get a boost from tax funding.
At least, I thought, it's temporary--so we won't be saddled with another one of those monster tax expenditures that gets built into the Code and pricing expectations and is well nigh impossible to repeal, like the home mortgage interest deduction and the home gain exclusion provisions that permanently distort investment decisions in favor of housing over many other valuable capital expenditures--such as college and post-graduate education.
Well, it looks like that was wrong. Congress is close to enacting an extension and expansion, trying to save the crisis caused in part by the housing bubble by creating incentives to invest in more housing. Today (Nov. 2), the Senate voted 85-2 to invoke cloture on H.R. 3548, the Worker, Homeownership, and Business Act. It will extend the deadline for the $8000 credit through the end of April 2010. But it will also provide a new credit to existing homeowners to help them buy a different house. See BNA Daily Tax RealTime (nov. 2, 2009 at 7:20pm). Presumably that's aimed at those who've relocated and have to sell and maybe have rented for a few years but are still unable to sell for full price. See this blog for more info, which also notes that the expansion will also raise income limits to $225,000 for married couples.
Egads! I can see why real estate professionals and people who will get the windfall would support this. But it is hard to believe that it makes sense to provide more tax breaks for housing, especially when it is only to a select group that just happens to be in a position to purchase this year, who are already likely to get pretty darned good deals anyway, and especially if it includes well-off couples who make almost a quarter million annually (the current credit phases out starting at $150,000 for couples)? Especially when this extension alone will cost us another $17 billion or so.
They're also extending and expanding the provision allowing carrybacks of business losses. Before, it was just open to small businesses. Now, there will be an NOL carryback for five years for all businesses, so long as they had losses in either 2008 or 2009.
The only good thing in this bill, as far as I can see, is the provision for extension of unemployment benefits.
by cactus
The Rule of Capture and Legalized Theft
The rule of capture states that a resource belongs to the entity that, well, captured it, regardless of where that resource originated. In the US, it tends to apply to oil and natural gas development.
What the rule of capture implies is that if you and I are neighbors, and there’s an oil deposit underneath both our properties, if I stick a drill on my property, anything I suck out of there belongs to me. But oil (and natural gas and water) all move around, and when I extract stuff from under my property, it creates a vacuum, so that stuff that used to be under your property flows under mine. Put another way, when I extract oil or gas, some of what I’m extracting was originally under your property. Put yet another way, when I extract oil or gas, some of what I’m extracting was your property.
It gets worse... oil and gas producers typically engage in "fraccing" (hydraulic fracturing). That is, they pump a mixture of water, sand, and some noxious liquids under ground at high pressure to break the seams in which gas or oil are trapped in order to facilitate the flow of oil and gas. And that includes facilitating the flow of oil and gas from under your property to under theirs. If you're wondering how noxious the liquids that are used for this arem a story I was following earlier this year involves a herd of cows that collapsed and died after the cows drank some fluid that spilled from a drilling operation. I imagine it would take a lot more of that liquid to kill a cow than a fourth grader.
OK... now let's change the story a bit.... if I dig a deep and wide enough hole at the edge of our properties, stuff from your property will fall into mine. If the hole is deep and wide enough, and your house is sufficiently close to the property line, I may be able to get an awful lot of your worldly belongings to fall into a pit inside my property. Now, its pretty clear that if I pull such a stunt off, the law won't look kindly upon me.
The same is true if we're talking about gold deposits under ground. Assuming neither of us has sold our mineral rights, we both own whatever gold could be found under our properties. Of course, if I dug out all the gold under my property, and then proceeded to dig a big enough hole (underground) along the edge of our properties, I might just manage to get some of the gold under your property to end up under mine. But while I am no attorney, I suspect the law would not look kindly upon me if I did that.
So what is the difference? Before you think about it too much, or I provide my answer, let me hasten to add - this is not a "commons" issue. The commons are just that, the commons. They belong to everyone - that is not true of your house, or minerals underground in your land.
Now, my guess is the difference is that oil and gas flow more easily than, say, gold underground or a home above-ground. But all that means is that its harder to tell if oil or gas coming out of my pump originated under your property and hence was originally yours. As I see it, this rule countenances theft because it is difficult for anyone to spot the transition from when a specific activity doesn't involve taking someone else's property to when that same activity does involve seizing someone else's property. I think its a really bad reason to forcibly assign one person's property rights to another. I would have thought the shoe should be on the other foot, and the driller should be the one required to prove that a) they haven't taken oil or gas that was originally under someone else's property much less b) pumped noxious stuff under someone else's property at high pressure. Its not impossible to do... it just requires putting an impermeable barrier between the two properties that extends deeper than oil or gas deposit. Costly? Well, yes. But the alternative to doing so is essentially theft by omission which would never be tolerated as an excuse in any other milieu.
At least, I hope it won't be tolerated when applied to something other than oil and gas. In a world in which Goldman, Welfare, Queen & Sachs plays such a prominent role, I worry about what will happen when the folks on Wall Street learn about this and decide to start drilling around my 401-k.
Your thoughts?
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by cactus
Mish sends us to "Track the Money," recovery.gov's breakdown of where funds have been sent and spent.
He's not happy, but I suspect he's suffering the Jared Bernstein Problem: only looking at one side of the equation.
But—and this is the key "but"—the reason it is right to do that is that ARRA money has two-way flow. It supports jobs and production, both priming the pump and moving production forward. This works if (1) the cost is minimal and (2) the production will be saleable (avoid the "double-dip"). Which implies (1) domestic interest rates must remain near zero and either (2a) U.S. consumer demand for domestic goods must increase or (2b) the U.S. dollar must depreciate, making our goods more desired abroad.
All of the above is reasonable and conceivable, even if it does imply the stock market may be overvalued.
And if the recent reports are true, the biggest effect of the stimulus has been in stabilizing education, which reaps long-term benefits, as conservative economist Ed Glaeser noted last month.
But that's the stimulus. The bailout money, well, that's another question. And another post.
AIG is bankrupt, but Manchester United still wears their logo.
However, when Dutch bank DSB Bank NV filed bankruptcy, Stephen Colbert had to step in to sponsor U.S. Speedskating?
Maybe the Dutch understand Sports Economics and the Americans don't?*
*J.C. Bradbury, Dennis Coates, Skip Sauer, to name just three, would dissent from the last statement. But they might believe the Dutch pay better attention.
Paul Krugman argued that optimal fiscal policy in a liquidity trap targets unemployment equal to the non accelerating inflation rate of unemployment (NAIRU). He uses a model with Ricardian equivalence. This means that the public debt does not affect consumption.
When he wrote his post, I said I thought his conclusion depended on this assumption. My thought was that deficit spending which keeps unemployment equal to the NAIRU will imply high public debt after the economy is out of the liquidity trap. In the real world, such public debt creates the illusion of wealth which causes higher consumption than people would choose if they were deluded. This is a cost of high public debt. I guessed that it meant that one should accept higher than NAIRU unemployment.
Formally it is possible to achieve NAIRU unemployment without deficit spending. Increased public spending financed by increased taxes stimulates the economy. In Krugman's model with Ricardian equivalence a balanced budget spending increase stimulates just as much as deficit financed public spending. In the real world somewhat less for dollar of public spending, but the NAIRU can still be achieved. Of course in the real world it is very hard to raise taxes.
So my argument becomes “assuming you can't raise taxes and can only adjust public spending, is it optimal to set the unemployment rate equal to the NAIRU?”
I have a new answer. First assume that there is public spending which can be rescheduled without any inefficiency. That is it doesn't matter at all if we do it now or do it later. In theory some spending on building infrastructure or on maintenance of infrastructure could be like this.
With that strong assumption, the optimal unemployment rate during a liquidity trap is the NAIRU even if Ricardian equivalence doesn't hold.
The reason is that the duration of the liquidity trap is endogenous. OK a liquidity trap occurs when the nominal interest rate which gives unemployment at the NAIR is negative. Imagine an exogenous shock which will cause a liquidity trap lasting for say 2 years. Krugman says raise public spending during those 2 years so the unemployment rate is NAI. The spend normally. This is fine if taxes can be raised or if the resulting debt is sustainable and there is Ricardian equivalence.
Assuming taxes are fixed such a policy would require spending cuts after 2 years.
That does not imply unemployment higher than the NAIRU after 2 years. Lets say in the third year, the optimal interest rate would be 1% for normal public spending. Cutting spending so that the NAIRU interest rate is 0% is consistent with NAI unemployment. The period of zero interest rates can be extended until the extra debt built up during the 2 years of low demand is paid off.
It is not necessary to accept unemployment over the NAUIRU in order to deal with deficits even if tax increases are absolutely impossible.
It is necessary to time public spending for purely macroeconomic reasons, so this conclusion depends on the assumption that changing the spending schedule is costless.
Robert Waldmann
Don't say you weren't warned. I am trying to understand the effects of the switch from mechanically controlled machine tools to electronically controlled machine tools and then to digitally controlled machine tools. I don't really know much about machine tools, but, then again, I don't know much about firms or the business cycle either. My thoughts after the jump.
update: spelling checked
I warn again, don't trust any claims of fact in this post.
The reference to Kurt Vonnegut is a reference to "player piano" a dystopian vision of mass unemployment due to industrial robots. It seems that Mr Vonnegut never checked how many people are actually employed in manufacturing, since he asserted that there would be massive unemployment even if people demanded services from other people. So I am not going to predict massive unemployment.
I am partly stimulated by the Nobel Memorial Prize committee which gave the prize to Oliver Williamson for new contributions to the old theory of the firm -- that is for trying to figure out the optimal amount of vertical integration. In very brief Williamson argued that vertical integration is efficient when intermediate goods are made with inflexible capital.
IIRC They key example is stamps for bashing metal which shape metal into one form. He noted that arms length market transactions don't work in this case. Once the parts supplier has sunk money into the specific capital, the final goods manufacture can pay a price equal to marginal cost giving it 0 return on the sunk cost. Thus only a fool will sink money in capital which produces a good for only one possible customer without any guarantees. A long term contract promising to by a fixed amount of the part for a fixed price can make the transaction possible. Similarly things work out fine if the parts are made by the same firm which makes the final product, since the firm has no incentive to take advantage of itself.
(a bit of jargon here. To pay marginal cost to a supplier who has paid a fix cost of building specialized capital is called "to seize the quasi-rent produced by the capital." I will strikestick with "take advantage of" below.)
Note the example depends on the inflexibility of capital. Once it applied to grinding and assembling as well as stamping. That is, I am changing the subject to equipment which grinds, assembles, welds etc. The specific example of metal stamps still works, but many other productive processes have evolved in a way that protects a parts supplier from ruthless bargaining by their customer, the final goods producer.
Once upon a time, machines which ground and welded and so forth were controlled by the hands of skilled artisans. Also parts were put together by human hands. Then it was noted that a machine could do that on its own with its active bits (drill bits for example) guided by metal guides, by oddly shaped metal parts through which other metal parts slid or by oddly shaped gears.
This made it possible to substitute pieces of metal for people and the pieces of metal demanded no wages. The problem is that the machine could do only one thing. To make the mechanically controlled machine tool do something else, new metal parts had to be designed and made and the mechanically controlled machine tool and to be disassembled and reassembled. This process is called "re-tooling".
Then technology shifted to analog electronically controlled machine tools (as described by Kurt Vonnegut). The movements were controlled by electronic signals read off a magnetic tape. The machine tool could be, in effect, retooled by leading it through the new motions once. I don't know how this was done, but I assume that a manual control (like a joystick or something) was plugged in and the tape recorder was set to record. Then someone could try to make the machine tool perform a new task and keep trying and recording over the tape till the controller did it well (via the joystick). Probably frustrating, but quicker than designing, casting disassembling and reassembling.
Then they went digital. Now the motions are described with equations and the new instructions are typed on a keyboard. No one with skilled hands was needed (I mean the equations could be typed in by hunt and peck if necessary). The tragic irrelevance of the artisan in the digital age was made by David Noble (who was allegedly denied tenure at MIT, because he noted that technology is not everyone's friend).
This made manufacturing much more flexible. This reduced the optimal degree of vertical integration. If suppliers just have to reprogram their machine tools when their current customer tries to take advantage of them, then they don't neeed to be a long term contracts nor is efficiency enhanced if they merge with their customer.
Why low and behold, large firms are outsourcing more and more in the age of digitally operated machine tools. I'm sure Prof. Williamson has noted this fact which supports his analysis.
I am interested in something else -- the business cycle. I think that increased flexibility helps us understand the late great moderation (near absence of the business cycle form 1982 through 2007), the reduction in temporary layoff unemployment, the unprecedented current average duration of unemployment, and the joblessness of recent recoveries.
The point is that it used to be that a rule of manufacturing is that when demand is slack one shuts down and retools. Producing new products and improving efficiency required a fairly long period without production -- the period during which the machine tools were disassembled. Relatively few people were employed disassembling, and reassembling the mechanically controlled machine tools. Thus temporary layoffs were a necessary part of innovation. Given that, firms decided to schedule them at a time when demand was slack. If all firms have the same policy, recessions can happen due to a sunspot. In practice they had something to do with monetary policy and/or oil shocks, but the instability of the system made frequent severe recessions possible.
If it takes minutes not weeks or months to digitally retool, then there is no technological need for temporary layoffs. It might be better to deal with slack demand by cutting prices rather than production. Sometimes firms will choose to shut down a factory permanently, but they will have less reason to shut it down for weeks or months but not forever.
In fact, there has been a massive reduction in temporary layoff unemployment, and, in particular, in temporary layoff unemployment during recessions. This implies weaker recoveries -- permanently laid off workers need to find new jobs and expanding firms need to find workers. In particular, this implies a less rapid increase in employment in recoveries. Finally it obviously implies longer average spells of unemployment for the same unemployment rate.
Many stylized facts about the changes in the business cycle can be explained by increased flexibility of capital, including, in particular, digitally operated machine tools.
by Bruce Webb
A lot of progressives insist that there is a simple golden-bullet solution to the health care crisis. All we need to do is substitute the 30 page HR676 Single Payer/Medicare For All bill for the 1990 page HR3962. Which led me to ask "How can you possibly supply code language to overhaul the U.S. health care system in 30 pages?" Well you don't, HR676 is in bluntest terms a political joke. I provide a lengthy breakdown in this post at the Bruce Web HR676: Political Fools' Gold and in the interest of space provide a severely abbreviated version here.
Provisions of the bill:
Universal coverage for all residents including undocumented workers. (Sec 101)
No out of pocket expenses for anyone. (Sec 102 (c) )
Benefits include unlimited medical, dental, vision, perscription drugs, substance abuse treatment, long term care all at no direct cost to the end user. (Sec 102 (a) )
For profit medicine made illegal. Including dentistry, optometric services, pharmacies, out patient or in patient care. (Sec 103)
Investor owned medical facilities to be converted to non-profit status within one year with the government paying for ""reasonable financial losses incurred as a result of the conversion from for-profit to non-profit status. " (Sec 103)
Private insurance for any benefit covered in the bill made illegal. (Sec 104)
Providers must either be salaried or paid on a set national schedule regardless of geographic variations. (Sec 202)
Costs will be covered by unspecified income taxes on the upper 5%, a "modest" payroll tax, and some tax on stock and bond transactions. (Sec 211)
All costs for construction and renovation of medical facilities to be paid for by the government (Sec 202)
Indian Health Service to be eliminated after five years. (Sec 401)
VA Hospital system potentially to be eliminated after ten years. (Sec 401)
It is pretty common for commenters on the Left to say that no one is proposing a government takeover of medical care on the model of the British National Health System. And they are right. This proposal goes far beyond that. There is not a single hysteric charge by the Limbaugh/Beck/Bachmann crowd that would not be supported by the text of this bill. With one exception, it doesn't actually provide for death panels. But in every other respect this is a proposal for a communist-style health care system.
Think that is too strong? Well check out the bill as it is presented by its biggest supporter Physicians for a National Health Program. http://www.pnhp.org/publications/united_states_national_health_care_act_hr_676.php
Let me add my urging to theirs: Read the Text of H.R.676
Don't let anyone tell you that this is just a case of opening Medicare to everybody, this is a root and branch transformation of the entire medical delivery system. Under this bill Perle Vision Centers and "your neighborhood Walgreens" become illegal operations. As it does any group owned clinic including in all likelihood your dentist. I mean who could afford to finance establishment of a new medical facility out of pocket with no outside investors?
The answer to the question in the title of my post? Blatant posturing for effect. No serious person would put forth a policy that at one and the same time provides unlimited free medical care for illegal immigrants and phases out a dedicated health care system for disabled veterans. Christ the campaign ads write themselves.
Via Greg Mitchell's Twitter feed, lying isn't just for the IB branch any more:
Goldman declined for three years to confirm their suspicions that it had bought their mortgages from a subprime lender, even after they wrote to Goldman's then-Chief Executive Henry Paulson — later U.S. Treasury secretary — in 2003.
Unable to identify a lender, the couple could neither capitalize on a mortgage hardship provision that would allow them to defer some payments, nor on a state law enabling them to offset their debt against separate, investment-related claims against Goldman.
This one has something of a happy ending:
In July, the Beckers won a David-and-Goliath struggle when Goldman subsidiary MTGLQ Investors dropped its bid to seize their house. By then, the college-educated couple had been reduced to shopping for canned goods at flea markets and selling used ceramic glass.
But it required a judge who is more sane than Gretchen Morgenson of the NYT, and therefore knew to ignore false equivalencies:
"In bankruptcy court, they tried to portray us as incompetent or deadbeats,'' said Celia Fabos-Becker, blinking back tears as she sat with her husband in their living room, with boxes of mortgage-related documents surrounding them....
As the months dragged on, Fabos-Becker finally found a filing with the Securities and Exchange Commission confirming that Goldman had bought the mortgages. Then, when a lawyer for MTGLQ showed up at a June 2007 court hearing on the stock battle, U.S. District Judge William Alsup of the Northern District of California demanded to know the firm's relationship to Goldman, telling the attorney that he hates "spin."
The lawyer acknowledged that MTGLQ was a Goldman affiliate.
That was an understatement. MTGLQ, a limited partnership, is a wholly owned subsidiary of Goldman that's housed at the company's headquarters at 85 Broad Street in New York, public records show.
In July, after U.S. Bankruptcy Judge Roger Efremsky of the Northern District of California threatened to impose "significant sanctions" if the firm failed to complete a promised settlement with the Beckers, Goldman dropped its claims for $626,000, far more than the couple's original $356,000 in mortgages and $70,000 in missed payments. The firm gave the Beckers a new, 30-year mortgage at 5 percent interest.
If anyone in ObamaNation wonders why the voters hate the bailouts, go read the whole thing.
by Rebecca
Central banks across Asia are concerned and actively engaged in some kind of currency manipulation - direct intervention, quasi-capital controls, and/or public speech (I will refer to this later, but RGE published a great article to the fact) - as investors flock to global capital markets seeking the "risk-on" trade. Central banks are attempting to stem the sometimes sharp currency appreciation, however, real exchange rates remain competitive.
Over the last three months, the $USD has dropped 3.6% against the Singapore dollar, 4% against the Malaysian ringgit, 6.1% against Indonesian rupiah, 1.9% against the Thai baht, 3.6% against Indian Rupee, 6.8% against the Korean won, and 1.8% against the Taiwan dollar.
The chart illustrates the trend in key Asian (not including China, whose exchange rate is explicitly pegged at 6.83 since July 2008) nominal exchange rates (measured in local currency units per $USD) - appreciating , which has Asian export industries worried. Central banks are intervening (in some cases through direct $USD purchase), where further intervention is a near certainty as many of these countries see export growth as the impetus to recovery. As such, and according to RGE last week, Asian central bankers are faced with a dilemma:
Despite a flood of portfolio investments into many of the region’s asset markets since early 2009, Asia still needs foreign capital to stimulate investment and finance its current accounts. Therefore, facing a sluggish export recovery and a pegged Chinese renminbi, most countries have opted to contain currency appreciation via verbal and actual interventions to avoid losing competitiveness. Intervention in the foreign exchange market has led to record reserve growth of over US$70 billion in Q3 alone in emerging Asia ex-China. Although most Asian countries are expected to keep intervening amid some currency appreciation, several countries may impose restrictions on foreign currency transactions. Given buoyant equity markets, attractive carry trades and the U.S. dollar weakness, policy measures will not contain the impact of capital inflows on Asian currencies, meaning that some appreciation from the least trade-dependent countries is to be expected. Taiwan is the country where capital controls or new restrictions are most likely to be implemented.True, Asian nominal exchange rates are appreciating (sharply in some cases); but what one needs to consider is the real effective exchange rate. Actually, real effective exchange rates (taking also into account relative prices) remain rather competitive. In fact, only Indonesia and South Korea are experiencing any substantial real appreciation, and South Korea's coming off of a very low base.
The chart above illustrates the real exchange rate: the nominal exchange rate defined in units of home currency per unit of foreign currency * (foreign price level)/(home price level). A movement up indicates a real appreciation of the local currency against the country's trading partners.Real exchange rates in Malaysia, Thailand, Taiwan, and India fell in the latest monthly data point; and furthermore, some are seeing the downward trend intact. Indonesian policymakers are worried - the sharp appreciation of its currency is growing the real exchange rate quickly.
It's a complicated policy world out there - a hodgepodge of monetary stimulus, capital controls, and fiscal deficits. Something's gotta give; and my bet's that it will not be the currency. Direct intervention and further capital controls are on the way in Asia in spite of the need for foreign-sponsored domestic investment.
Rebecca Wilder
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