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Tom Daschle’s health care book – Part II

Tom (STR) has another post at Health Care Think Tank

Senator Daschle wants to build on the current private system, but also expand the scope and reach of federal government programs.

The Federal Health Board, modeled after the Federal Reserve Board, would initially be directed at the federal government programs, but Daschle makes it clear that with enough influence the FHB would assert significant control over the entire U.S. health care system.

“I believe a Federal Health Board should be charged with establishing the system’s framework and filling in most of the details. This independent board would be insulated from political pressure [emphasis mine] and, at the same time, accountable to elected officials and the American people. This would make it capable of making the complex decisions inherent in promoting health system performance. It also would give it the flexibility to make tough changes that have eluded Congress in the past.” (page 169)

“The Federal Health Board would have regional boards that would have a say in national decisions, but would focus primarily on promoting best practices and quality of care locally…… Over time, the regional boards might assume other roles, such as ensuring an adequate supply of certain services or linking payments to performance…..” (page 170)

Next post, the five functions of the proposed FHB.

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Another reason trade policy needs a serious look

lifted from Calculated Risk

From the International Air Transport Association: Cargo Plummets 22.6% in December (hat tip Bob_in_MA)

In the month of December global international cargo traffic plummeted by 22.6% compared to December 2007. The same comparison for international passenger traffic showed a 4.6% drop. The international load factor stood at 73.8%.

For the full-year 2008, international cargo traffic was down 4.0%, passenger traffic showed a modest increase of 1.6%, and the international load factor stood at 75.9%.

The 22.6% free fall in global cargo is unprecedented and shocking. There is no clearer description of the slowdown in world trade. Even in September 2001, when much of the global fleet was grounded, the decline was only 13.9%,” said Giovanni Bisignani, IATA’s Director General and CEO.” Air cargo carries 35% of the value of goods traded internationally.

“2009 is shaping up to be one of the toughest years ever for international aviation. The 22.6% drop in international cargo traffic in December puts us in un-charted territory and the bottom is nowhere in sight. Keep your seatbelts fastened and prepare for a bumpy ride and a hard landing,” said Bisignani.
emphasis added

Update: MG clarifies the post in comments:

Well, look at the FTK and ATK declines reflected in the second pdf document. Asia is bleeding far worse than Europe or the USA.

Now compare that to the significant decline in passenger travel across the Pacific in the other pdf document. Some of that lost travel is industrial business travel, and that slump kicked in last September as stated on that document. As explained, M&A deals, other financial meetings, and manufacturers business travel fell sharply. Perhaps it’s a stretch, but I tied the decline in business travel to the large drop in cargo movements across the Pacific. In other words, I believe that they go hand in hand. Of course, I’m also drawing upon information noted elsewhere.

If the USA snapshot was one during the early or mid ’90s, we would see more of a slump in air cargo movements in the USA as opposed to large transocean movement declines to/from Asia where a high concentration of goods are being manufactured for the U.S. and other markets.

I expect that was one of the points that Rdan noted or thought about as he made the post.

My short answer is simple: There should be no question that air cargo movements to/from Asia are down considerably. And it will probably get much worse.

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What is US trade policy to be? Who cares?


Naked Capitalism also points to the underlying inattention to US trade policy and our financial wizards.

Last night, we reported that the International Institute of Finance was calling for a global GDP contraction for 2009. The IMF today, while not going as far as the IIF, got about as downbeat as one could expect them to be, predicting a marked contraction in advanced economies. From the Financial Times:

[T]he International Monetary Fund increased its estimate of credit losses on US-based assets from $1,400bn to $2,200bn. It also said world output, measured at market exchange rates, would fall in 2009 for the first time since the second world war. Weighted by purchasing power, growth would be very slightly positive.

The new growth forecasts mark a huge revision – down by more than 1.5 percentage points – from the IMF’s previous forecast for the year in spite of the inclusion of the fiscal stimulus efforts by governments into its predictions for the first time. Advanced economies, the IMF predicted, would contract 2 per cent in 2009 with the UK hit hardest.

In Geneva, the International Labour Organization said the global recession would lead to a “dramatic increase” in unemployment this year, which would certainly lead to 18m-30m additional unemployed and more than 50m “if the situation continues to deteriorate”.

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Commenting on Thoma commenting on Blanchard commenting on Lucas

Robert Waldmann

Mark Thoma has a long post on the end of the Fresh Water Salt Water truce. He quotes at length from Olivier Blanchard’s declaration of peace in our time. In particular from Blanchard

the old fresh water/salt water distinction has become largely irrelevant: While research on the topic started with new-Keynesians, recent research has been largely triggered by an article by Golosov and Lucas (2007), itself building on earlier work on aggregation of state-dependent rules by Caplin and by Caballero, among others.

I’d call Caplin and Caballero definitely salt water, so the proof that the war is over is the paper by Golosov and Lucas.

Obviously Blanchard knows a lot more than I do about the current state of macro research. However, I can’t help but notice that he names only one paper by Fresh water economists which accepts nominal rigities (OK one of the economists is Lucas so it counts more than double but still one article is one article).

Blanchard is likely to see convergence basically to New Keynesian general equilibrium models (like say Blanchard and Kiyotaki which isn’t exactly new is it). He, like Mankiw, is a new Keynesian who loves math and favors the rational expectations hypothesis. That is, he will be reconciled with Prescott long before, say, Larry Summers or Brad DeLong.

I’m not surprised by the recent contributions of fresh water economists to the policy debate. For one thing, many fresh water economists have extreme policy views. The school is partly based on preferring mathematical elegance to assumptions which most people find plausible, but it is also partly based on the idea that the market is wonderful and public intervetion in the market is always bad. Thus a nice model of nominal rigidities is OK, but a conclusion that, therefore countercyclical macro policy is good is not.

Note Lucas decided that the business cycle is of trivial importance so reducing its amplitude would provide trivial benefits *before* he accepted a model with nominal rigidities. Back when he considered the business cycle the key issue in Macro, he argued that active policy could only increase its amplitude.

Now that we seem to be in a recession which sure doesn’t seem trivial, he suddenly argues that macro stabilization policy can’t work, although it can given nominal rigidities as in his paper with Golosov.

Is there any work from Lucas at all that doesn’t fall under the heading of lets do math, the harder the better, so long as we don’t conclude that it is possible for public intervention to improve on laissez faire ?

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for the non economists


A background for the non economists concerning freshwater and saltwater economists harks back to 1976 when Robert Hall christened the central schism in macroeconomic thought as being between the freshwater and saltwater schools. The division was picked by their location (on the Great Lakes and Rivers versus the coastal schools). The division exists today – and indeed is being played out in Krugman’s (saltwater) blog and by the Chicago economists who think he is a bozo idiot.

Yeah Robert and PGL.

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The ‘illions, by volume, area and time

by reader Noni Mausa

The ‘illions, by volume, area and time

If a million
Was a walnut

A billion
Would be three ice cream pails

A trillion
Would be my spare bedroom
If a million
Could be covered by a man’s handkerchief

A billion
Could be covered by a 1500 square foot bungalow

A trillion
Would be 25 acres – 33 football fields
If a million
Was a single day

A billion
Would be 2 years 10 months

A trillion
Would be 2800 years
by reader Noni Mausa

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U.S.-China Competition: Trade, IT, and Other Considerations

By Stormy

How is China handling the global slow-down? And what precisely are China’s prospects? The answers to the first are more neatly framable than the answers to the second. The answer to the second depends not only on China but also on the West, specifically, the U.S. How the U.S. confronts the issue of China will be central as both move through the present crisis.

Reviews of how China is handling the present slow-down coming are complex. On the one hand, we have iStockAnalyst watching China, now flush with cash, snap up bargains in commodities like copper, iron, and oil:

Update: Live from Davos

  • Iron ore imports were up 6.2% in December, on a year-over-year basis
  • Copper imports were up 19.3%
  • And imports of crude oil climbed 11.6%

China is helping out its own producers of zinc, aluminum, and copper as they face a slow-down in global demand. China will stockpile those commodities for brighter days. On the other hand, China is aggressively trying to acquire foreign companies:

China’s third-largest zinc producer, Zhongjin, bought a 50.1% stake in Australian zinc miner Perilya Ltd. for $32 million.

China’s Jinchuan Group…will take 100% of the nickel the Zambian mine produces over the rest of its life. (Jinchuan now has an 18% stake in Albidon Ltd, an Australian company that owns the Zambian mine.)

Additionally, China has struck deals with other Australian companies:

  • Centrex Metals sold a 50% interest in two magnetite deposits to Wuhan Iron & Steel Co., China’s third-largest steel maker for $180 million
  • Mount Gibson Iron brokered a rights issue and share placement to Chinese interests, with two major companies taking a stake of as much as 40% in the miner, while also securing discounted off-take agreements.
  • China’s second-largest steel maker, paid $162.1 million to boost its stake in Gindalbie Metals from 12.6% to 36.28%.
  • Grange Resources is currently set to merge with Australian Bulk Minerals, which is majority-owned by a Chinese steel maker

On the other hand, China is worried about its huge export-oriented economy. Lay-offs and slow-downs multiply. Additionally, currency exchange watchers will see that China has put once again firmly pegged the yuan to the dollar.

While U.S. the U.S. pours billions into failing banks, China hands checks to its companies for a global buying spree. Chinese companies can tap China’s immense current account surplus. Furthermore, China’s acquisition timing could not have been better. Commodity prices have plummeted; deals can be made.

And, as has been noted in the economic press, China has now surpassed Germany as the Number 3 economy. Japan is next. And then there is the U.S.

But…and there always is a but…China now faces a serious problem: Its export platform is collapsing. Nonetheless, China is looking ahead. The question is: Can China continue is present path of development?

While there are many ways of looking at this problem, in this short space, I would like to look ahead, beyond the present crisis. Specifically, I want look at the problem from the U.S. point of view.

Much has been said that China is simply shoes and textiles…cheap consumer goods… Actually, nothing could be further from the truth. Consider, for example, U.S. net trade deficit in Advanced Technology:

While imports and exports are both climbing, the absolute difference between the two reveals that imports are climbing faster than exports.

In 2007, Pacific Rim countries accounted for most of U.S. imports of Advanced Technology. Of those countries, China was number one, surpassing even Japan. Surprised? There are many ways of explaining how China, a presumably third world economy, could surpass Japan in exporting Advanced Technology to the U.S.

Of passing interest as well is the fact that the U.S. in 2007 ran a net trade deficit in Non-Automotive Capital Goods. Note the following 2007 statistics:

All of which brings me back to the problem of China, which now has the world’s number two economy, Japan, clearly in its sights. Ahead lies the U.S., now in deep trouble.

While China plans for the future, the U.S. and the West are intent on saving their financial institutions while blunting the worst of this Depression.

Many look at the problem as simply one of stimulating aggregate demand. That is a rather myopic view, in my opinion. Trade and the current account balance are important, as is national indebtedness.

I do, however, see signs in the Obama administration that it does see the U.S. trade deficit as the serpent in any future garden. (Remember Geithner’s remarks about currency manipulation, for example.)

China and other countries now running a substantial account surplus might weather the financial storm in somewhat better condition, if, if, they can handle the loss in exports. (A big “if.”) I suspect that China is counting on our stimulus package to rescue its export machine.

Another part of that “if” is how seriously the U.S. reconsiders its position vis-à-vis trade…and how it looks upon its own corporations that have fled its shores for juicier deals elsewhere.

In this last regard, I found the complaint of Hewlitt Packard’s Shane Robison, HP’s chief strategy and technology officer, that America’s great IT companies might go the way of the automotive industry. He would

like to see the following: a permanent research-and-development tax credit, which would encourage tech companies to do more basic science research, which in turn would benefit everyone, not just the company that conducts the research; more government funding for basic science research; more spending on education; and changes in immigration laws to help foreign-born students who study in the United States to stay in the country afterward.

Now it is true that we do need to invest more heavily in advanced technology. But take another look at the above graphs. Now consider that of the 321,000 HP employees, only 100,000 work in the U.S. According to Stan Williams, a senior fellow at HP labs:

“Technology has been paying the bills in this country,” he says. “It’s delivering all of the innovation and the profits in the United States. The IT industry has created the wealth that we’re enjoying now. But because the industry is doing well, it gets neglected. We’re killing the goose that lays the golden eggs.”

Consider again the above graphs.

IT may be garnering the wealth, but it is not necessarily providing the jobs. And jobs are now the name of the game.

While we seem to be doing well in semi-conductors, Intel and others are building huge plants in the Philippines and elsewhere (cheaper labor).

If you have any question about major IT companies honing their off shoring strategies, then you should consider IBM’s global strategy. (See my comments here. Ironically, the link in this piece to IBM’s stated strategy is no longer operative. Nonetheless, the quotations are accurate.) It is simply not a question of more and better education. It is a question of salaries…of jobs.

How would I address this issue? Here are just some possibilities.

  • Place an import tax on any American company whose products originated in a country that manipulates its currency or in a country that does not allow labor to bargain freely.
  • Insist that any future companies springing from government-funded research be required to stay solely within the U.S. for ten years.

To return to my original question: What are China’s prospects? In some respects, they depend on how the U.S. handles its own problems, not the least of which is trade and the corporations it has nourished and will nourish.

Beyond all of these issues loom even larger ones.

According to some recent studies, global warming is now irreversible. Similarly…and just as important…global pollution grows apace, along with unabated population growth. How every country faces this triple threat will govern its real success in the next couple of decades.

China, I think, is just as aware as we are of these coming problems. (It, too, is trying to develop, for example, an affordable and usable electric car. It, too, is trying–albeit abortedly–to create cities that are “green.” While IT will continue to be central to any economy, the future will be in melding that technology with a “green” technology, a technology that will radically change how we all must live, if live we will.

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Two comments on Kling

Arnold Kling doesn’t support the stimulus, but he doesn’t agree with fresh water critics either.

He refers to Mankiw’s classification of macroeconomists as “scientists” and “engineers” then writes

Because the data are not powerful enough to reject any hypothesis against an interesting alternative, the macroeconomic “scientists” divorced themselves from the “engineers,” who continued to use macroeconometric models. In my view, neither the scientists nor the engineers accomplished anything. The scientists did mathematical masturbation, with some occasional, isolated empirical work that satisfied journal referees based on whatever fads were taking place at the moment but had no lasting persuasive impact. The engineers provided forecasts and policy simulations that were precise in form and totally unreliable in substance. In any case, the engineers were kept out of economics departments.

I agree except that I think that Mankiw’s use of the word “scientist” is nonsensical and has nothing to do with its ordinary English meaning except as used by economists who flatter themselves.

My outburst along with my thoughts on his discussion of the stimulus after the jump. These were comments so I address Kling in the second person.

I agree with Kling’s thoughts on the Macro dark ages.

I have only one objection and it isn’t to your thought at all. I do not accept Mankiw’s terminology. You write “The scientists did mathematical masturbation.” I agree, but, if we are right, then they aren’t scientists. Rather they are mathematicians (although mostly not of a level which would meet the grade in a second rate math department).

The defining characteristic of natural science is that theories bow to facts. Theoretical physicists have high standing in the profession (higher than empirical physicists) but, if their theories are contradicted by the data, they are abandoned. The physics profession as a whole, is governed by data so theoretical physicists bow to empirical physicists (who sure are engineers) even though they feel superior.

And that’s physics. One of the problems with those Mankiw defined as “scientists” is that physics is the only science they ever think of. In biology, it is perfectly possible for a Nobel Laureate to admit without embarrassment that he needs to ask for help with calculus except for the simplest things (Salvatore Luria personal communication 1983). His role in the MIT biology department (then clearly the best in the world) was similar to that of Samuelson over at the economics department).

Many economists sincerely identify a scientific approach with a mathematical approach. I hope the fact that this is nonsense is obvious to everyone reading this.

I’d ask Mankiw if he can find 10 natural scientists who would consider those he calls “scientists” to be scientists.

Now as to your criticisms of the engineers — well what would you do ? I’m new to this blog, so I note my ignorance without apology. What is your current policy proposal (say you became 218 representatives, 60 senators and the President what would be done ? Would you wait to act until you had made a new approach to macro based on Hayek and Minsky ? I don’t think that would be optimal.

On the stimulus, as far as I can tell, Kling says that Hayek showed that a stimulus was bad if reallocation of labor is needed (no hint as to evidence nor any response to critics of Hayek) objects that Obama isn’t libertarian, and says that Americans have to suffer to punish financiers who used excessive leverage. I can’t tell very far though. He doesn’t seem to offer any explanation of how the stimulus can have bad effects and rather seems to think that an economy without a crisis and a stimulus would be better than one with both. Unfortunately an economy without a crisis is not on offer. I edit down his thoughts but you should click the link.

1. We have a heterogeneous labor force, and that will require Hayekian market adjustment, not central planning. [snip]

2. The stimulus plan is highly partisan and ideological in nature. [snip]

3. I have a Minsky-esque view of the nature of the crisis. That is, we have gone from being risk-loving (ponzi finance, in Minsky’s terminology) to ultraconservative (hedge finance, as he calls it). I don’t think we can (or should) put back together the Humpty-Dumpty of securitization and leverage that we had before. Businesses need to expand out of good, old-fashioned profits. Fiscal stimulus ought to be aimed at improving profitability.

I don’t see how any can describe the stimulus plan as “central planning.” Evidently Kling uses “central planning” to mean “not laissez faire.” It would be easier to see if he has an argument if he would use words with their standard meanings.

My comment on his arguments

I don’t agree at all with your first argument.
As far as I can understand it, you are arguing that the Beveridge curve has shifted out. I believe it has shifted in in the past 16 years. In other words you seem to be arguing that natural rate of unemployment has increased which explains why Alan Greenspan was wrong to guess that low unemployment in the mid 90s did not imply that monetary tightening was needed.

Neither you nor Hayek has explained why higher unemployment is needed to shift out of over-expanded sectors than was needed to shift into them. You can’t explain why a stimulus would interfere with reallocation of talent, nor am I aware of any empirical evidence supporting Hayek’s view (quite the opposite I’d say high unemployment causes people to stick to jobs which don’t optimally use their skills and interferes with reallocation basically what we need to get people out of where they are and to where they are productive are job vacancies and their is this thing called the Beveridge curve).

Your point 2 explains why you would prefer a different stimulus. Obviously you fundamentally disagree with Obama about most areas of policy other than, maybe, the case for fiscal stimulus right now. I think you could just say “I’m at CATO so obviously I don’t like any bill proposed by Obama” and leave it at that. In any case I’d say it means you would prefer a different stimulus, but does it mean you think that no stimulus would be better than Obama’s proposal ?

The only link between your point 3 seems to be that you seem almost to be arguing that a stimulus would be bad, because it would reduce economic suffering and people should suffer to punish them for their folly and teach them better. A rather broad brush approach. I don’t see why someone who hasn’t even bought a house losing his job is an efficient deterrent for say AIG writing CDSs. I mean is your argument, as it seems to be, the worst it is the better it is ?
That is the only link I can see between your respect for Minsky and your opposition to the stimulus.

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Will the stimulus package be a pork fest?

by Bruce Webb
reader Buffpilot in comments insists the answer is clearly yes on the grounds

The Dems, have NEVER, shown fiscal responsibility when in charge of the purse strings (or at least since before LBJ). So you have zero track record to back you up on thinking that the Dems will suddenly cut back government expenditures and raise taxes to at least get close to balancing the budget. Can you imagine the Dems actually cutting the size of the Federal governemnt? Or reducing its power? Neither do I. BTW the Rs have not been any better.

Well the historical record tells us something different. If we examine Total Debt as a percentage of GDP it went down or stayed even under every post-war President not named Reagan or Bush. We were able to fund the post-war GI bill, the Marshall Plan, Korea, the Great Society, Vietnam, navigate the first Oil Shock all of it except for two years with a Democratically controlled house. And came through the whole thing with debt as a percentage of GDP bottoming out in 1980. I am afraid the old narrative of Democrats as the party of tax and spend policy leading to ever increasing deficts while Republicans being the party of fiscal responsibility has really not been the case since Eisenhower left office. Instead the whole concept of Small Government has since 1964 and the birth of the Modern Republican Party meant “don’t spend tax money on undeserving poor people”.

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