Relevant and even prescient commentary on news, politics and the economy.

PPACA Premiums are Lower than You Think

Or so The Brookings Institute would like us to believe. What would cause Brookings to take such a stance especially since parts of the PPACA increased costs dramatically and premiums have increased dramatically? Coverage such as:

mandated guaranteed issue regardless of health status;

restrictions on the ability to charge different premiums based on anything besides age and smoking habits;

requirements for plans to offer certain benefits deemed “essential;”

limits on out-of-pocket costs an enrollee can pay for covered services in a given year; and

the elimination of any lifetime limits on coverage

have had a significant impact on costs.

Countering elements of the PPACA push the cost dynamics in the opposite direct keeping the impact of costs lower. The individual mandate and federal subsidies increased the pool of people seeking coverage increasing the size of the market and resulting in decreased costs and subsequent premiums. While Healthcare.Gov has its issues; however, it did increase transparency of the market place where consumers can compare the costs of the various plans and what is offered as measured against an actuarial standard.

A larger market or pool of people shopping for healthcare pushed against a historical trend of higher premium increases. Couple this with states reviewing policy pricing and the MLR limiting the percentage of premium being applied to administration. The trend has been lower then pre-PPACA.

As a comparison Brooking used a second tier Silver plan to point out the differences pre-2014 and after implementation of the PPACA.

average premiums for the second-lowest cost silver-level (SLS) marketplace plan in 2014, which serves as a benchmark for ACA subsidies, were between 10 and 21 percent lower than average individual market premiums in 2013 (page 4 graph), before the ACA, even while providing enrollees with significantly richer coverage and a broader set of benefits. Silver-level ACA plans cover roughly 17 percent more of an enrollee’s health expenses than pre-ACA plans did, on average. In essence, then, consumers received more coverage at a lower price.”

Without the PPACA, Loren Adler and Paul Ginsburg of Brooking’s Center for Health Policy analysis shows a 2nd tier Silver Plan insurance policy premiums would have been 30% to 50% higher in 2017 (page 9 graph) even if premiums grew 10% by 2017 in comparison under the PPACA.

Is it free, no. Is it cheaper, yes. Could it be better, it will be in time.

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Inflation & Corporate Profits

Is there a relationship between Inflation and Corporate Profits? I think so. But I do not know of anyone talking about the relationship, so I will.

The point I want to make is that corporations control prices. They set prices. They are not just price-takers. Corporations will change prices with an eye on their profits. In the aggregate, we will see changes in inflation. I will also finish by saying that the Fed feels the Fed rate can rise because firms still have a large profit cushion with which to absorb a rate increase.

Let’s set up the relationship between inflation and corporate profits.

First, see corporate profits as a corporate profit rate. (Fred data)

Corporate profit rate = Corporate profits/GDP

Then, get a nominal interest rate.

Mixed nominal interest rate = 0.56*effective Fed rate + 0.44*10-year treasury rate

To get this equation I optimized the fit of many nominal rates to the analysis, see graph #3 below. It gives the highest R Squared for the exponential trend line in graph #3 below. (rates used were effective Fed rate and treasuries at intervals of 3 months. 1 year, 3 years, 5 years and 10 years.) The treasuries at 3 months, 1 year, 3 years and 5 years dropped out as non-influential. Only the effective Fed rate and the 10-year treasury showed influence with the coefficients in the equation, 0.56 and 0.44 respectively. I used solver in Excel to maximize the fit.

This graph compares the mixed nominal rate with the Fed rate.

inf corp1

Graph #1

I will use the orange line as the mixed nominal rate for the analysis below.

Now that we have a nominal interest rate, we need to get the real interest rate.

Real interest rate = Mixed nominal rate – inflation rate

Inflation rate = CPI without food and energy

I do not use expected inflation. As Krugman & Wells wrote in their Economics book, 2015 edition…

“The expectations of borrowers and lenders about future inflation rates are normally based on recent experience.” page 729

Corporations will borrow money, lend money or simply invest their own money as long as the opportunity cost of money is covered. Of course they seek the best returns, but the opportunity cost must be covered first.

When a corporation invests money, they only need to make more than the cost of the real interest rate, which is the nominal rate minus core inflation. Here is a graph of the difference between the corporate profit rate and the real rate.

inf corp3

Graph #2

Graph #2 shows that there is normally enough of a profit rate for a positive difference in favor of corporations to beat the real rate. The Volcker recession of the 80′s pushed firms to the edge so that they would slow down inflation.

Which brings us to firms controlling inflation.

When firms are pushed against the lower bound of the real rate, they will maintain enough inflation to not fall below the cost of the real rate. Inflation will actually push the real rate farther down. But there are forces that do not like inflation… namely the banks. The return on their loans will be nibbled away by inflation.

Yet if the profit return on investment starts to go below the cost of the real rate, firms will raise prices in the aggregate. We saw this happen during the Volcker recession from graph #2 where the plot did not fall much below the zero lower bound.

Yes, inflation was falling during the Volcker recession, but at a pace controlled by firms to keep their profit rates above the cost of the real rate… in the aggregate of course.

Notice in graph #2 how the profit rate has been building a bigger and bigger cushion over the cost of the real rate since the 80′s. Inflation has been dropping over that time. There is less pressure over time for firms to create inflation to protect their profit rates in the aggregate. So much so, that deflation starts to come into the picture. Maybe firms have enough room to actually cut prices to gain market share and still keep a nice profit rate.

To see this another way, the next graph pulls out inflation from graph #2 and puts it on the y-axis. Corporate profit rate minus the mixed nominal rate are on the x-axis. The down-sloping straight dark red line now represents the zero lower bound of the real cost of money which was the horizontal x-axis in graph #2. So the data points want to stay to the right of the dark red straight line.

inf corp4

Graph #3… (note: The bright red exponential trend line has its R squared optimized with the coefficients for the Fed rate and 10-year treasury, 0.56 and 0.44 respectively.)

The #1 in graph #3 points to where Volcker set in motion his recession in the second half of 1980. The data points were getting ready to fall in a Southeasterly direction. But nominal rates began to rise pushing the data points to the left. Inflation did not change, but the plot moved directly toward the lower bound of the real rate. Firms began to contract. A recession started. The #2 points to where the plot fell along the real rate boundary. Profit rates held pretty steady during that time. It was the nominal interest rates and inflation that fell together at a pace to keep aggregate profit returns above the real rate boundary barely.

Now as the plot in graph #3 goes Southeast down along the real rate boundary, an economy could just slide into deflation, but it doesn’t. Why? There is resistance near the 0% inflation line. Actually firms can increase their profits by going to the right away from the real cost boundary. The farther away from the real cost boundary, the more profits firms enjoy.

Ono top of that, the Federal Reserve wants to keep a 2% inflation target, which firms love. Firms are fine with a low inflation rate, but the Fed keeps dropping the Fed rate trying to get firms to raise inflation. But firms are fine with low inflation. As well, as firms stay close to the 2% inflation target, they are able to increase their profits even more.

There is a some temptation by many firms to keep prices low in order to battle for market share, but firms in the aggregate are simply enjoying very high profit rates since the crisis. But the increased relative temptation to hold down prices contributes to what seems like “stubbornly” low inflation. It’s just that firms are not concerned about profits enough to raise prices.

Look at #3 in graph #3. It points to where inflation jumped up a bit . You can also see  this in graph #2 where the plot went so high to a maximum at the end of 2011.

Firms may not need to raise prices; they are far from the real cost lower boundary. Yet firms can increase their profit cushion over the cost of the real rate by raising prices. It is likely that the uncertainty in 2011 and 2012 prompted firms to maximize their profit rates as much as possible. Yet, even though the uncertainty has backed off, firms are still enjoying an environment of high profit rates over the real cost of money. They have been taking advantage of the situation in my opinion.

Graph #3 implies that inflation is low because firms have much weaker price pressures with such high profit rates over the real cost of money. So it seems logical that the Fed still wants to raise the Fed rate which would still raise the Mixed nominal rate used above. Firms have lots of profit cushion to absorb the Fed rate increase.

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“This country isn’t yours. You don’t own it!”

“You don’t own patriotism, you don’t own Christianity. You sure as hell don’t own respect for military, police and firefighters.” John Stewart

If you have not seen John Stewart taking over for Stephen Colbert on The Late Show, take the 10 or so minutes necessary to listen to Stewart’s remarks and see him get his explicative bleeped out by Colbert. As usual, John is on target with his message.

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Apparently it wasn’t time for some traffic problems on I-95 during Kaine’s term as governor

Kaine’s emails show he was engaged on everything from traffic flows on southbound I-95 to explanations on why he picked one state lawmaker over another to sponsor income tax legislation. “Because I know him much better,” the governor wrote.

Kaine email trove shows media-savvy micromanager, Darren Samuelsohn, Politico, today

I thought it was time for some humor.  Apologies.

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Ugh. Okay, still …

In a letter co-signed by 15 other Senate Democrats — and every Senate Republican — Kaine asked the Consumer Financial Protection Bureau to exempt community banks and credit unions from many of its regulatory requirements. In justifying these exemptions, the letter suggests that these regulations would make it more difficult for these small banks to continue “spurring economic growth” and that such rules are unnecessary, anyhow, since community banks “were not the primary cause of the financial crisis.”

This latter point is a bit of non sequitur. Just because a reckless activity was not the “primary cause” of the last global economic crisis doesn’t mean that activity isn’t worth preventing. According to the Intercept’s David Dayen, the rule Kaine proposes “could allow community banks and credit unions to sell high-risk mortgages or personal loans without the disclosure and ability to pay rules in place across the industry.” Such bad loans may not take down our financial system, but they could ruin the lives of the families that receive them.

In a second letter to the Federal Reserve, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, Kaine and his co-signers argue that large regional banks like PNC, BB&T, and SunTrust should be exempt from two regulations meant to reduce their risk of collapse.

Currently, these banks are required to issue daily reports about their levels of liquidity, so as to assure the government that they hold enough assets to cover a 30-day period of financial stress. Kaine and 69 of his colleagues would like to exempt regional banks from this requirement, regardless of their size.

Kaine would also like these banks to be exempted from the “advanced approaches” capital requirements that dictate the ratio of reserves a bank must hold to cover potential losses. At present, any bank that holds $250 billion in assets is deemed systemically important and thus subjected to these requirements. Kaine argues that this threshold is too low, in light of the fact that the financial sector has grown substantially since the rule was written. Since regional banks “do not share the same risk profile or complexity as their larger, systemically important brethren,” the letter writers argue, they should not be forced to comply with the same regulations. But it’s not clear why the signatories believe that the collapse of a large regional bank wouldn’t create significant ripple effects in our deeply interconnected financial system.

While Kaine stepped up to the plate for banking interests this week, he simultaneously snubbed consumer-advocacy groups. On Wednesday, Kaine was one of 13 Democratic senators to withhold his signature from a letter authored by Sherrod Brown, which called for strengthening new rules against abusive payday lenders. The senator’s office told the Huffington Post that he is “working on his own separate ‘Virginia-focused’” letter on payday lending.

Clinton VP Favorite Just Gave the Left Two More Reasons to Distrust Him, Eric Levitz, New York magazine, yesterday (H/T Naked Capitalism)

An article I read late last night (I can’t remember where) said Clinton had been leaning toward Kaine partly because she thinks he will help her win votes of white men because he is originally from the Midwest and is, well, a white man.

That concerned me, because it suggests that Clinton sees white men as somewhat fungible: What matters is the region of the country he hails from and the fact that he is white and male.  But this election season has shown rather clearly that there are two distinct types of populism, one far more important in the South than elsewhere, the other far more important in the Midwest and the Northeast—respectively, the racial and xenophobic white-grievance mania that Trump has promoted so successfully, the other traditional economic-populism issues of the sort that Bernie Sanders and Elizabeth Warren have come to represent in the minds of so many voters.

The article I read last night also reported, and the New York magazine article also says, that Bill Clinton had been pushing strongly for Kaine.  This too concerns me.  Bill Clinton remains ossified in the ‘90s; there has been indication upon indication of that in the last year.  He makes Hillary Clinton look observant of the current political climate.  Hillary Clinton spent the last year and a half until roughly three weeks ago seemingly unobservant of the current political climate—the very morning after the California primary, when she effectively secured the nomination, she was on the phone to moderate Republican donors, apparently on the assumption that they couldn’t figure out for themselves that if they couldn’t abide Trump they should support her, since she’s the only actual alternative.  So Bill Clinton’s feat is notable.

And Hillary Clinton’s decision to choose Kaine suggests what I, and I know many other progressives, fear: that she is manipulated by her husband to an unnerving extent.

I’m on a listserve of Sanders supporters whom the Clinton campaign occasionally targets with messages from Clinton promising to be a progressive president, and last night I received a message titled “Welcome Tim Kaine”.  It begins by assuring that she and Kaine both are genuine progressives.  The rest of the message is, I assume, the message she sent to her supporters announcing her choice of Kaine.  What caught my attention was something that also caught my attention when I read his Wikipedia page last night before posting this post (and titling it as I did): Kaine graduated from Harvard Law School and then practiced law in Richmond.

Why Richmond? I wondered when I read the Wikipedia entry, which doesn’t answer that question.  Kaine had no ties to Virginia.  And, it hit me, after graduating from Harvard Law he didn’t work for the government and didn’t work for a corporate mega-firm.  Yet he did practice law.  That’s really important.  (Trust me.  It is.)

In her email, Clinton details this.  After graduating from Harvard Law School, Kaine moved to Richmond to litigate against that city’s pervasive racial discrimination in housing.  He practiced law there, in Richmond, for 17 years.  Just ordinary law, I guess (although Clinton doesn’t say); not law of the corporate variety, I presume.

This matters.  But not as much as, I fear, Clinton thinks.  Economic populism matters right now in domestic policy, beyond all else.

I can’t emphasize enough that there is, I’m pretty sure, nothing that would cause me to not vote for this ticket.  But I’m a single vote.  And the way to win the votes of enough white men in Midwestern swing states is run on the progressive economic policy platform that so largely reflects Sanders’ and Warren’s policy prescriptions, if not enough.  It is not to rest on the belief that a majority of voters want experience and steadiness.  And that a majority of white men in swing states care mostly about whether or not the candidate has chosen a white man as her running mate.


UPDATE: I want to really emphasize my point above that Bill Clinton apparently is having disconcertedly undue influence over Hillary in critical respects.  I’ve just read more about Kaine’s time as governor, and while these essentially Republican actions and positions he took may well have been necessary in order to enable a potentially successful Senate run, this is not a candidate who should be the Dem VP nominee, least of all in this election cycle.

As I say above, I was just dismayed when the very morning after the California primary, Hillary Clinton was on the phone soliciting contributions from moderate Repub donors.  But in thinking about this today, I realize that this probably was at Bill’s  elated suggestion.  This is NOT good–this retro chokehold on the current nominee.

Added 7/23 at 12:47 p.m.

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Clinton achieves the impossible

I was fairly certain that if Clinton were elected president and the Democrats were to win a majority in the Senate, that they would lose that majority in 2018.

I think that Hillary Clinton may have proven me wrong and found the only way to prevent that — by causing the Democrats to lose the majority in 2017.

I think this is about the dumbest thing a politician has done since her husband nominated Lloyd Bentson secretary of the Treasury (OK the stuff he did with Lewinsky wasn’t too smart either but this Clinton wasn’t as tempted this time).

update: just to try to be more nearly clear, my claim in this post is that, if Kaine is elected VP, his Senate seat will be filled for one year by someone chosen by the governor and then there will be a special election. I believe that this election will be in 2017 along with the gubernatorial election. I am fairly confident that it will be won by a Republican. I believe that there aren’t all that many Democratic politicians who can win in purple Virginia in a non Presidential year and that Kaine is one of them.

I think that that high risk of losing a senate seat outweighs any other effect of the choice.

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I think Kaine will be fine. [UPDATE: I'm no longer so sure.]

When I posted this earlier today it was because I had just read an article about these letters Kaine had joined other members of Congress in signing last week.  The article wasn’t the one I just linked to; I can’t find the one I read.  But I misunderstood it in two respects: I thought the letters were recommending reduction in the Dodd-Frank capitalization requirements for all banks, and I thought they were objecting to important new regulations by the Consumer Financial Protection Bureau.  Instead, the signers want the capitalization requirements reduced for community-type banks and credit unions, in order to make it easier for them to compete with the mega-banks.

That’s not a bad thing, in my opinion.  Anything that makes community banks more able to compete with the internationals is probably a good thing, I think.  Of course, reinstating Glass-Steagall would help, too.

In any event, here is an article I just read about Kaine that makes me think he’ll be fine.  Freed from the constraints of Virginia politics, he could become quite progressive.  We’ll see.  He does seem to be genuinely intelligent and thoughtful.

And anyway, he’s not Hickenlooper.

Time to rally around Clinton-Kaine.


UPDATE: This excerpt from a just-posted Washington Post article contains one of the quotes in the earlier article I read that prompted me to post this earlier today:

In recent television interviews, Sanders has praised Kaine, but some of his supporters have sharply questioned his progressive bona fides, pointing to Kaine’s support of trade deals and regulations favorable to big banks.

Charles Chamberlain, executive director of the activist network Democracy for America, which backed Sanders in the primaries, said Thursday that it should be “disqualifying” for any potential Democratic vice-presidential nominee to “help banks dodge consumer protection standards.”

Those two paragraphs in the Post article are followed by these:

And on Friday, Norman Solomon, the coordinator of a group billing itself as the Bernie Delegates Network, called Kaine “a loyal servant of oligarchy.”

“If Clinton has reached out to Bernie supporters, it appears that she has done so to stick triangulating thumbs in their eyes,” said Solomon, whose organization claims to represent hundreds of Sanders delegates attending the convention in Philadelphia but is not coordinating with the campaign.

In a way I wish I knew the specifics of what Chamberlain and Solomon are talking about, but in a way I don’t.  I’ll be voting for this ticket no matter what.  And right now I just want to see what Kaine says.

Added 7/22 at 10:24 p.m.

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The New World ORDER

Paul Krugman has a terrific column today titled “Donald Trump, the Siberian Candidate,” but really he suggests that Trump is the Manchurian candidate. Krugman suggests that Trump is actually fronting for Putin on the world stage. I think he’s right.

The only difference between the Manchurian candidate in the movie and Donald Trump is that Trump, unlike the movie character, would be doing what he would be doing completely consciously and wittingly. In a word: treason. Or something darn close to it.

This is jarringly serious stuff.

I think the Clinton campaign and the Dem Party would be crazy not to run a series of ads, and soon, making and an elaborating on the points Krugman makes in that column, first and foremost Trump campaign manager Paul Manafort’s longtime ties to Putin folks and to other rightwing dictators.  There also should be footage of Soviet armored tanks marching into Czechoslovakia in 1968 and Hungary in the mid-1950s.

I also think they should run ads juxtaposing video of Trump making some of his fascist-like statements (and pointing out that Trump repeatedly threatens the press, bars unfriendly media organizations from covering his events when he can) with footage of Adolph Hitler’s speeches in the early and mid-1930s.  There certainly are significant similarities.

The ads should flash the slogan “The New World Order.”  They should actually illustrate what type of order Trump has in mind.

This has crossed a line, and needs to become a major part of Clinton’s and the Dems’ campaign.  I’m not sure—at all—that the Clinton, which strikes me as just as slow-footed as Clinton herself—is up to the task of recognizing and dealing with this, though.

And I do think, notwithstanding the gist of the comments in the comments in the Comments thread, that as a political matter I was right in what I said here yesterday.  But, really, only if Clinton and her campaign actually inform the public of these specifics.  And I don’t mean just via Twitter.


UPDATE: The ad banner immediately above this post is from the Trump campaign, showing Trump with his right arm raised chest-high and his hand pointing forward and off toward the right.  It inaugurates what apparently is his campaign’s brand new slogan: Leading the Way.

Yes; exactly.  Clinton, her campaign and the Dem Party need to illustrate what Trump is leading the way toward.

Added 7/22 at 10:29 a.m.

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