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

Senate healthcare bill costs 15 million their health insurance next year, 22 million by 2026

One consequence of electing the popular vote loser is that the official winners act as if they have a mandate for the most extreme version of their policies. Thus, we have proposed legislation, the misleadingly titled Better Care Reconciliation Act, that will not only roll back Obamacare’s expansion of Medicaid, but impose further large cuts on the program in addition. In total, the Medicaid cuts will come to $772 billion through 2026.

As a result primarily of ending the individual mandate, the Congressional Budget Office (CBO) estimates that 15 million fewer people will be insured in 2018 than would be the case with current law. As healthier people remove themselves from the individual market, this will cause increases in insurance premiums and the likelihood of further collapse of the market. As Tierney Sneed points out, there will be some premium reductions in the individual market, but this will be due to the plans being much less generous and having higher out-of-pocket costs. Tellingly, the CBO report judges that low-income people will not buy insurance under these circumstances. As a result, by 2026 there will be 22 million fewer people without insurance.

On the revenue side, of course, the Republican bill cuts taxes on the rich by $541 billion.

It’s hard to know where to begin. The chutzpah of such a gigantic transfer from the poor to the rich staggers the imagination. As with everything surrounding Trump, this is completely surreal.

The good news is that it’s not a done deal. Three Republican Senators (Collins, Paul, and Heller), one more than McConnell can afford to lose, are currently opposed to the bill in the Senate. Republican governors who have expanded Medicaid (Sandoval of Nevada and Kasich of Ohio), plus Baker of Massachusetts (which expanded Medicaid under former Governor Deval Patrick) have also come out against the bill.

It’s no secret, then, what to do. Keep the pressure on your Republican Senators. If there is no vote this week, you’ll have the opportunity to see them over the July 4th recess as well. The stakes have never been higher.

Cross-posted from Middle Class Political Economist.

Comments (34) | |

Video series for “Rethinking Investment Incentives”

Video series for “Rethinking Investment Incentives”

As regular readers will recall, I contributed to the Columbia Center for Sustainable Investment’s book, Rethinking Investment Incentives: Trends and Policy Options (Columbia University Press, 2016). Now, the editors have put together a series of video teasers for most of the individual chapters, all of which can be seen here.

As I wrote before, the book offers the perspectives of numerous experts in the field, and you can get quick overviews of the chapters from the teasers. These include the authors of chapters on theoretical analyses of location incentives; overviews of incentive use in the United States, the European Union, and the rest of the world; and control policies both subnational and supranational. I hope you find them of interest!

Comments (0) | |

Kansas Republicans abandon Brownback; raise taxes over his veto

Kansas Republicans abandon Brownback; raise taxes over his veto

Remember Kansas’s great tax-cutting experiment under Governor Sam Brownback? (Me, sarcastic?) As always in Arthur Laffer and Stephen Moore La-La Land, cutting taxes leads to economic nirvana. Except when it doesn’t, and it didn’t in Kansas.

I recently wrote about the idiocy of Investor Business Daily‘s criticisms of California, and Paul Krugman carried the ball further, citing me and bringing in a comparison with Kansas (Brownback and Jerry Brown both took office in 2011). As Kansas cut taxes and California raised them, Kansas managed to raise employment by 5% from 2011 to 2017, whereas California’s job growth was a rather more impressive 15% over the same period. As it turns out, Kansas’s problems weren’t limited to poor job growth.

As Alexia Fernandez Campbell points out at vox.com, one major change “eliminated taxes on owner-operated businesses, known as pass-throughs.” This created an incentive for people to switch from being employees to being separate businesses providing exactly the same services. Tax avoidance reduced tax revenue by an estimated 1.7%, while the total reduction in tax revenue was 8%. With losses of this magnitude, Kansas ran into persistent budget trouble. For this, it was rewarded by Standard & Poors with credit downgrades in 2014 and 2016. By contrast, California saw its credit upgraded by the rating agencies several times. Both states now have an AA- rating from S&P, which is the fourth-best rating but below average for U.S. states.

By this week, the Republican-supermajority Kansas Legislature had had enough. Overriding Brownback’s veto, the legislature passed a repeal of most of Brownback’s tax cuts, including the pass-through provision mentioned above. Hopefully the state will now be able to begin repairing its six-year fiscal nightmare.

Do I have to tell you that Laffer and Moore are the main advisers behind Trump’s tax plan, too?

Comments (1) | |

Consumer Reports: Obamacare reduced bankruptcy rate

A new article at consumerreports.org suggests that the Patient Protection and Affordable Care Act* (PPACA) played a substantial role in the decline of annual personal bankruptcies that we have seen since the high of 1.5 million in 2010.

As I showed several years ago, international bankruptcy data support the oft-heard claim that medical bills make up one of the biggest, if not the biggest, causes of personal bankruptcy. That is, if the United States has a bunch of medical bankruptcies and other countries don’t, all other things equal you would expect the U.S. to have a higher overall bankruptcy rate than other countries. And the only article I was able to find on this showed that it was true: In 2006, the U.S. had a rate (6000 per million population) that was twice Canada’s (3000 per million), which in turn far outstripped #3 Germany (1200 per million). The U.S. and Canadian rates have long been the highest because they had the most debtor-friendly bankruptcy systems, so debtors took advantage of it when they could.

Canada and the U.S. had similar rates in 1982, but thereafter the U.S. rate increased substantially more rapidly than Canada’s did. As this period was also marked by U.S. health care costs outstripping those of other OECD countries, this is definitely evidence that medical bills were contributing to the higher U.S. bankruptcy rate.

Now, as suggested by Consumer Reports, the increase in insurance coverage rates and the many consumer protections due to the Affordable Care Act are contributing to a falling bankruptcy rate. Certainly, part of the fall is due to the passing of the worst part of the Great Recession, but the numbers are still striking.

A chart showing how the number of personal bankruptcy cases dropped after the ACA was introduced.
As the article points out and the chart above emphasizes, protections that surely reduced bankruptcy rates were contained in even the initial phase of the ACA. In 2011, the Obama administration rolled out the ban on yearly and lifetime limits, guaranteed coverage for pre-existing conditions, and implemented the rules allowing adult children to remain on their parents’ policies until they were 26. By the time all ACA provisions were in effect in 2014, there was already a decline of over 600,000 bankruptcies per year. In the next two years, bankruptcies declined by a further 160,000 per year.

With the possibility that the American Health Care Act (AHCA) could reverse many of those protections, the conclusion is inescapable that medical bankruptcies will once again increase. Just how much, of course, depends on the particulars after (and if) the bill goes through the Senate, but this new study shows us just how much we have gained, and how much we have at risk.

* I use the full name of the law because both the patient protection and affordability aspects of the legislation contributed to this outcome.

Consumer Reports has not responded to my request to use the chart. It will be removed if so requested.

Cross-posted from middleclasspoliticaleconomist.com.

Comments (15) | |

European Union ends relocation subsidies

This isn’t actually news, but it’s news to me, and it’s something you need to know. Greg LeRoy sent me an article by James Meek in London Review of Books (20 April 2017) that he’d been sent by a friend, documenting more EU-permitted job piracy by Poland that preceded the case I discuss at length in my book, Investment Incentives and the Global Competition for Capital. There, I criticized the European Commission’s Directorate-General for Competition for approving a 54.5 million euro subsidy for Dell to move from Ireland to Poland in 2009. During my January 2011 book tour, I took a lot of flak from DG Competition when I presented there, with several staff pushing back on my criticism of this decision.

As the LRB article pointed out, this was another case involving Poland, where Cadbury received state aid of about $5 million (14.18 million zloty when the zloty was worth about 0.35 USD) in November 2008 to move from the Somerdale, United Kingdom, to Skarbimierz (the LRB gives a much bigger number, but from unspecified “Polish government figures,” so I cannot find a way to compare it with the EU’s case report). This case is only listed in the EU’s Official Journal, where it is reported as having been notified under the General Block Exemption Regulation. As this regulation is intended for uncontroversial cases, that makes it evidence, though hardly proof, for a relatively smaller rather than larger aid amount. For my purposes, the amount is less important than the fact that we have another documented relocation subsidy.

What’s the big “news”? In Meek’s article we read, “In 2014, too late for Somerdale, the EU recognised its error and banned the use of national subsidies to entice multinationals to move production from one EU country to another.” Just like that.*

Okay, I’m abstracting from the political process. But it’s pretty clear what happened. As I reported in Investment Incentives and the Global Competition for Capital, when Dell moved to Poland, all of Ireland was up in arms, including government officials and Members of the European Parliament. The European Parliament made its displeasure known. What the Somerdale case shows us is that there was at least one other country on the wrong end of a relocation subsidy, strengthening further the political pressure for state aid reform.

As I said, Commission staff believed they made the correct decision in the subsequent Dell case, and the rationale would have been exactly the same for Cadbury. The move sent economic activity from somewhere with high per capita income to a place with a far lower per capita income. They saw this as an overall increase of efficiency within the European Union. As I argued, though, even if that were the case, the decision wasn’t good for intra-EU solidarity, and it undermined support for policies promoting the growth of the EU’s poorer regions (“cohesion” policy in EU-speak). In light of the 2014 policy change, we know that arguments aligned to mine were the ones that carried the day politically.

This shouldn’t come as any surprise: People generally don’t like job piracy when they know about it. If you’ve read Chapter 5 of my book Competing for Capital, you know that it’s basically not allowed for states to use federal funds (Community Development Block Grants, Small Business Administration, etc.) to engage in job piracy. But in each program’s case, the reform happened only after one or more such incidents (many of them reported to me by Greg LeRoy during my research) had taken place, leading to demands for change.

Moreover, individual states know how to prevent job piracy within their own state. As of 2013, 40 states had shown their ability to write anti-piracy rules (p. iii). But they don’t hesitate to use relocation subsidies when it comes to raiding other states. They can’t seem to help themselves since they all need investment, and nothing stops other states from providing incentives. In fact, all multi-state anti-piracy agreement in the U.S. have failed, and even the most promising recent attempt (Kansas/Missouri) failed to get off the ground.

Only the federal government can stop states from stealing jobs from one another, but don’t hold your breath on it happening anytime soon even though the negative-sum nature of inter-state border wars is easy to see. It’s heartening to me to see the European Union has finally changed its policy, given that I have written mostly positive things about state aid control over the years. It’s great for the glaring exception to be gone.

 

*For the technically inclined, this is embodied in a ban of relocation subsidies under the General Block Exemption Regulation, and in the Guidelines for Regional Aid 2014-2020, which classifies a relocation aid (paragraph 122) as “a manifest negative effect,” “where the negative effects of the aid manifestly outweigh any positive effects, so that the aid cannot be declared compatible with the internal market” (paragraph 118).

Cross-posted from Middle Class Political Economist.

Comments (3) | |

U.S. Has Worst Wealth Inequality of Any Rich Nation, and It’s Not Even Close

I’ve discussed the Credit Suisse Global Wealth Reports before, an excellent source of data for both wealth and wealth inequality. The most recent edition, from November 2016, shows the United States getting wealthier, but steadily more unequal in wealth per adult and dropping from 25th to 27th in median wealth per adult since 2014. Moreover, on a global scale, it reports that the top 1% of wealth holders hold 50.8% of the world’s wealth (Report, p. 18).

One important point to bear in mind is that while the United States remains the fourth-highest country for wealth per adult (after Switzerland, Iceland, and Australia) at $344,692, its median wealth per adult has fallen to 27th in the world, down to $44,977. As I have pointed out before, the reason for this is much higher inequality in the U.S. In fact, the U.S. ratio of mean to median wealth per adult is 7.66:1, the highest of all rich countries by a long shot.

The tables below illustrate this. First, I will present the 29 countries with median wealth per adult over $40,000 per year, from largest to smallest. The second table also includes mean wealth per adult and the mean/median ratio, sorted by the inequality ratio.

 

1. Switzerland  $244,002
2. Iceland  $188,088
3. Australia  $162,815
4. Belgium  $154,815
5. New Zealand  $135,755
6. Norway  $135,012
7. Luxembourg  $125,452
8. Japan  $120,493
9. United Kingdom  $107,865
10. Italy  $104,105
11. Singapore  $101,386
12. France  $  99,923
13. Canada  $  96,664
14. Netherlands  $  81,118
15. Ireland  $  80,668
16. Qatar  $  74,820
17. Korea  $  64,686
18. Taiwan  $  63,134
19. United Arab Emirates  $  62,332
20. Spain  $  56,500
21. Malta  $  54,562
22. Israel  $  54,384
23. Greece  $  53,266
24. Austria  $  52,519
25. Finland  $  52,427
26. Denmark  $  52,279
27. United States  $  44,977
28. Germany  $  42,833
29. Kuwait  $  40,803

Source: Credit Suisse Global Wealth Databook 2016, Table 3-1

Now that I’ve got your attention, let me remind you why this low level of median wealth is a BIG PROBLEM. Quite simply, we are careening towards a retirement crisis as Baby Boomers like myself find their income drop off a cliff in retirement. As I reported in 2013, 49% (!) of all private sector workers have no retirement plan at all, not even a crappy 401(k). 31% have only a 401(k), which shifts all the investment risk on to the individual, rather than pooling that risk as Social Security does. And many people had to borrow against their 401(k) during the Great Recession, including 1/3 of people in their forties. The overall savings shortfall is $6.6 trillion! If Republican leaders finally get their wish to gut Social Security, prepare to see levels of elder poverty unlike anything in generations. It will not be pretty.

Let’s move now to the inequality data, where I’ll present median wealth per adult, mean wealth per adult, and the mean-to-median ratio, a significant indicator of inequality. These data will be sorted by that ratio.

 

1. United States  $ 44,977  $344,692 7.66
2. Denmark  $ 52,279  $259,816 4.97
3. Germany  $ 42,833  $185,175 4.32
4. Austria  $ 52,519  $206,002 3.92
5. Israel  $ 54,384  $176,263 3.24
6. Kuwait  $ 40,803  $119,038 2.92
7. Finland  $ 52,427  $146,733 2.80
8. Canada  $ 96,664  $270,179 2.80
9. Taiwan  $ 63,134  $172,847 2.74
10. Singapore  $101,386  $276,885 2.73
11. United Kingdom  $107,865  $288,808 2.68
12. Ireland  $ 80,668  $214,589 2.66
13. Luxembourg  $125,452  $316,466 2.52
14. Korea  $ 64,686  $159,914 2.47
15. France  $ 99,923  $244,365 2.45
16. United Arab Emirates  $ 62,332  $151,098 2.42
17. Norway  $135,012  $312,339 2.31
18. Australia  $162,815  $375,573 2.31
19. Switzerland  $244,002  $561,854 2.30
20. Netherlands  $ 81,118  $184,378 2.27
21. New Zealand  $135,755  $298,930 2.20
22. Iceland  $188,088  $408,595 2.17
23. Qatar  $ 74,820  $161,666 2.16
24. Malta  $ 54,562  $116,185 2.13
25. Spain  $ 56,500  $116,320 2.06
26. Greece  $ 53,266  $103,569 1.94
27. Italy  $104,105  $202,288 1.94
28. Japan  $120,493  $230,946 1.92
29. Belgium  $154,815  $270,613 1.75

Source: Author’s calculations from Credit Suisse Global Wealth Databook 2016, Table 3-1

As you can see, the U.S. inequality ratio is more than 50% higher than #2 Denmark and fully three times as high as the median country on the list, France. As the title says, this is not even close.

The message couldn’t be clearer: Get down to your town halls and let your Senators and Representatives know that it’s time to raise Social Security benefits and forget the nonsense of cutting them.

Cross-posted from Middle Class Political Economist.

 

.

 

 

Tags: Comments (11) | |

Meanwhile, back in Ireland

We’ve gotten to another point where it’s hard for me to turn on the TV. I know this will have to change, but for now I’ll go back to one of my favorite topics, the fate of Ireland under austerity.

As I suggested might happen, Ireland in its 2015-2016 immigration statistical year (May-April) was finally able to end its net emigration. According to the Central Statistical Office’s August report, 3100 more people came to Ireland than left during 2015-2016. This was the first time since 2008-2009 that Ireland had net in-migration. Still, among the Irish themselves, net emigration continued in 2015-2016, with 10,700 more leaving than returning.

The unemployment rate declined again from Q3 2015 to Q3 2016, from from 9.3% to 8.0%. The monthly unemployment rate for January 2017 dropped to 7.1%. And yet…

While Q3 2016 employment increased by 57,500 to 2,040,500, this remains 5.6% below its Q1 2008 peak of 2,160,681. Things are finally getting better, but Ireland is still not all the way back.

By contrast, currency-devaluing, banker-jailing Iceland long ago passed its old employment peak (create your own table), which was 181,900 in August 2008. Employment reached a low point of 163,900 in February 2011, first surpassed the old peak in February 2015 (182,900), and in December 2016 stood at 194,400, or 6.9% above the pre-crisis peak.

Oh, and Iceland’s unemployment rate? A seasonally adjusted 2.9% in December 2016, and only 2.6% without seasonal adjustment.

Maybe one day we’ll talk about the Celtic Tiger again. But Ireland, hamstrung by its inability to devalue and by harsh austerity measures, shows lingering weakness, masked by emigration, to this day. Iceland, by contrast, is the one looking like a Nordic Tiger.

Cross-posted from  Middle Class Political Economist.

Comments (4) | |

Clinton’s lead now more than a million votes UPDATED

As I explained last week, Donald Trump was elected to the Presidency despite having fewer votes than Hillary Clinton. She has already set a record for the biggest popular vote victory despite losing the Electoral College; according to CNN, she now (11/17/16 5:00am EST) leads by about 1,045,000 votes, roughly twice the margin of Al Gore’s victory over George W. Bush in 2000. This equates to 0.8% of the popular vote.

Moreover, Clinton’s lead will only increase in the coming days. The CNN infographic cited above shows that only 78% of California’s votes (where Clinton leads by roughly 3 million votes) have so far been counted. Her raw vote margin will continue to climb there until the votes are all counted.

People have raised two primary arguments against my position that having the Electoral Vote trump the popular vote is undemocratic. The first takes the view that Trump won under the rules as they are: If the popular vote were determinative, he would have campaigned more in California, New York, Texas, and other population centers, and, in his mind at least, he would have recorded an even bigger victory. The problem for this claim, as Josh Marshall has pointed out, is that Clinton would have also campaigned more in those states. Increasing voter turnout usually improves Democratic electoral fortunes, so electing the President by popular vote means that Democratic margins would increase, not decrease.

The second argument claims that focusing on the Electoral College as the reason for Clinton’s loss lets her off the hook for her weaknesses as a candidate and a campaigner. And there is no doubt that she had her weaknesses. The problem with this view is that the existence of the Electoral College is a necessary condition for her to have lost. None of her campaign’s other problems would have led her to lose the election if the Electoral College did not overweight the Wyomings of this country relative to the Californias. This structural disadvantage that populous states face is one of the biggest threats to democracy in America. And we’ve got to do something about it, soon.

Update: It’s now over 1.5 million, according to CNN.  California still only has 83% tallied. Some sources have Clinton’s lead over 2 million now. Something is seriously wrong with this picture.

Cross-posted from Middle Class Political Economist.

Comments (44) | |

Election of popular vote loser proves necessity of abolishing Electoral College

For the second time in just 16 years, the new President is actually the loser of the national popular vote (click on “Popular Vote”). This is the fifth time this has happened in U.S. history; the last time it happened prior to 2000 was in 1888. As children, we were all taught to believe in democracy and majority (or as we later learned, sometimes just plurality) rule. But with the way that rural and low-population states are overrepresented in the Senate and, hence, the Electoral College, the United States has persistent problems in achieving democratic outcomes in presidential elections and in passing legislation (the overrepresentation of small states in the Senate is amplified by the use of the filibuster).

As I write this (Nov. 9 at 3:53 EST), Hillary Clinton presently has a 219,000 vote lead, according to CNN (see link above). Yet she has lost the Presidency because low-population states are overrepresented in the Electoral College. How do we avoid such affronts to democracy in the future?

The best, and most straightforward way to do this would be to abolish the Electoral College entirely. This would make it impossible to repeat this travesty again.However, the Amendment process is a difficult one, requiring 2/3 majorities in the Senate and House of Representatives, and approval by 3/4 of the states.

There is an alternative, though it might not be permanent. This is called the National Popular Vote bill, which would take the form of an interstate compact that would come into effect when it was ratified by states wielding at least 270 electoral votes. The concept behind the bill is simple: The states which are members of the compact pledge to award all their electoral votes to the winner of the national popular vote (50 states plus the District of Columbia), rather than the winner of the popular vote in their own state. This would ensure that the popular vote winner also won the Electoral College. However, this solution might not be permanent, if one or more of the signees passed legislation withdrawing from the compact.

At present, states comprising 61% of the needed 270 electoral votes have signed on to the agreement. This is made up of ten states plus the District of Columbia, with 165 electoral votes. A quick glance at the list shows the biggest potential problem: Every one of them voted for Secretary Clinton last night (although it should be noted that the Republican-majority New York State Senate voted in favor of the bill 57-4). Although there is some bipartisan support for the bill, Republicans in other states could decide that keeping the Electoral College is a partisan advantage, making it impossible to get enough states to sign on.

And yet, one of these (or something with equivalent effect) solutions is needed. American democracy is being degraded by our inability to elect as President the candidate with the most votes. It has now happened in two of the last five Presidential elections, and continues to be a threat for the foreseeable future.

Cross-posted from Middle Class Political Economist.

 

Comments (35) | |

New study casts more doubt on data center subsidies

A new report by Good Jobs First confirms what has been long-suspected: Data center megadeals of over $50 million in subsidies create very few jobs at a cost per job that easily exceeds $1 million. Indeed, the average for 11 megadeals going to tech giants like Google, Apple, Facebook, and Microsoft came to $1.8 million ($2.1 billion/1174) nominal cost per job.

As I have discussed before, such a figure far exceeds what a typical automobile assembly plant will receive, even though the latter creates far more, and better-paying, jobs than server farms do. An auto facility will receive something around $150-200,000 per job, and it will bring along suppliers to boot (though, unfortunately, sometimes the suppliers will also receive incentives).

The new study finds that by far the most important site location consideration is the cost of electricity and, increasingly, whether the electricity is generated by renewable sources like wind or solar. Thus, many of the biggest data centers are located in states like North Carolina (cheap coal-fired plants), Oregon and Washington (cheap hydropower). States with cheap electricity do not need massive subsidies, but they provide them, anyway.

At least, they usually do. As I have related before, American Express in 2010 announced a $400 million data center in North Carolina, without incentives. But fear not, Amex had not forgotten about using the site selection process as a rent-seeking opportunity. The reason it did not seek incentives, as far as anyone can tell (don’t forget about the inherent information asymmetry here), is that the company knew it was going to close a 1900-job call center in Greensboro, which would trigger clawbacks on the data center if it received subsidies for it. So in that case North Carolina gave no incentives for the server farm.

Not only that, Google knows how to build and expand data centers without incentives. Of course, that’s in Europe. The Netherlands Foreign Investment Agency confirmed for me that it gave no subsidies to Google for a $773 million, 150-job center opening in Groningen province next year. I was unable to get affirmative confirmation on projects in Ireland, Finland, and Belgium, but none of them show up in the EU’s Competition Directorate case database, so presumably they did not receive incentives either.

The study concludes with sensible recommendations: Transparency where it doesn’t exist, capping incentives at $50,000 per job, and knowing when to get out of subsidy auctions for these projects. Maybe simpler still, I would suggest that economic development officials just say no.

Cross-posted from Middle Class Political Economist.

Tags: , Comments (4) | |