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

Who Are You and What Have You Done With Paul Krugman II

Robert Waldmann

Paul Krugman thinks that a US politician is excessively opposed to tariffs.

End of days near.

I think the president has this wrong:

President Obama on Sunday praised the energy bill passed by the House late last week as an “extraordinary first step,” but he spoke out against a provision that would impose trade penalties on countries that do not accept limits on global warming pollution.

[snip]

The truth is that there’s perfectly sound economics behind border adjustments related to cap-and-trade.

Krugman goes on to make a perfectly convincing case (click the link) but would the Krugman of 1992 have discussed this in public with protectionist politicians listening ?

Already Krugman has shocked DeLong by agreeing with Reich.

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Examining The Damage to the NYC-area Economy

Being a seven-hour drive away, I don’t have as much direct knowledge of the NYC economy as I did a year or so ago. So I have to rely on Different Metrics.

Here is one DrektheUninteresting (see #6) (of Scatterplot and Total Drek fame) will love, when he resurfaces.

For those who want a contemporary view of how bad things have gotten in the U.S. economy in general and NYC, just check out the result of this eBay auction.

The winning bid was $10,250. The last time this item was auctioned, a mere six months ago (though in Los Angeles), it went for $12,000.

And a mere three years ago, the item was sold, in NYC, to two separate bidders (it being relatively non-rival), for $20,000 each.

Forget housing prices. If you want a metric to judge the decline of the NYC-area economy, just consider the decline in bidding even as the value of the underlying has gone up.

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CBO: Long Term Budget Outlook Part 3-Yes it is the Medicare/Medicaid

by Bruce Webb

In comments on the last post MG was challenging 2Slugs contention that the real issue was Medicare, while BuffPilot was accusing me of ignoring Obama spending. Well I am on my way out the door and will let the CBO do the talking for me:


That near term temporary light blue peak? Obama stimulus spending. That rising tide of deep blue? Medicare and medicaid.

QED.

Discuss.

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Strangely, CATO missed the AZ, IN, and MS budget crises

CATO was making much hay a few days ago about budget problems in California, New York, and New Jersey, which can be explained, respectively, by the Governor’s veto of an Assembly-passed budget a few months ago, the decline in tax revenues from financial services firms and continuing loss of upstate industry, and underfunded pension obligations whose origins date back to Christie’s cocaine-inspired budgets of the mid-1990s.

Strangely (via Dr. Black), they missed the crises in a few other states, most especially including the state governed by Republic hero Mitch Daniels:

Republican Gov. Mitch Daniels has warned residents that most of the state’s services — including its parks, the Bureau of Motor Vehicles and state-regulated casinos — would be shuttered unless a budget is passed today.

Closing down the casinos? Now that is extreme.

Mitch Daniels, doing for my old home state what he did for the country.

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Unsolicited Advice to Makers of Computers

by cactus

Unsolicited Advice to Makers of Computers – From a Heavy User

I have three Windows based PCs, and the ex-GF has a Mac. One of the Windows based PCs is a desktop, all the rest of our machines are laptops. One is a mini purchased three months ago, and the oldest machine (the desktop) is two years old. All but one are name brands… and a few months ago there was another (name brand) machine that has since died. Until recently I was a consultant, so there was a need for much number crunching in our household.

But here’s the thing – not one of the machines is fully operational. Peripherals don’t work, or don’t work with the machine, or don’t work reliably. We’re not computer geeks in this household, but we’re not exactly ignorant either. I spent a summer working in a computer repairshop and I have no problems opening up a machine and poking around if need be. I’ve even been known to do some prodding and the occasional fondling when the situation called for it. The ex-GF is more the help-desk type, and I’ve been forced to deal with that lately too. It usually doesn’t help. Its not helping the ex-GF either; her machine just came back from the “Genius Bar” and I wouldn’t be surprised if it goes back pretty soon.

I realized that maybe as recently as four or five years ago, every computer I bought lasted four or five years or more, and usually gave me no problems. On the rare occasions when I had to call the help desk, it solved the problem once and for all. I’m about to take the new mini to repair shop and tell them a) to do something about the the wireless modem turning itself off at random times for a week at a time and b) make the $#%^ cd reader I bought work with the thing. I’m prepared to pay as much as the mini itself cost me just to have it working once and for all and never again have to deal with the tech support people. I estimate I’ve spent about eighteen hours trying to fix these two problems myself (with and without tech support) and I’m tired and aggravated. My time is worth something, and avoidance of aggravation is worth more.

I was kvetching to my Dad, but his response was: “How many other industries are there which produce such complex pieces of equipment so cheaply?” I guess when you grew up with punch cards, you bring a different perspective to the table. And he’s right – you can’t build something this complex for this little and expect it to work. But computer makers aren’t advertising their machines as being any less reliable than the machines that a decade ago were being engineered to be dropped from a third story window and still function as if nothing happened.

All this got me thinking about the 1968 Buick Skylark I drove while I was high school and college. It was older than I was (I’m a 1970 model year, having, rolled off the assembly line in late 1969), and you had to fill it up every time you left the house, plus once more on the way back. And it could take a beating; a woman ran into me once with a Lincoln, and while I would not be surprised if that was the end of the Lincoln, I fixed the damage to the Skylark with a hammer. No amenities except an ashtray, but the damn thing worked for twenty five years. Which means it was still running long after most of the Buicks made in the 1970s and 1980s had been scrapped. (I don’t have statistics to back up that statement, but like everyone else, I’ve been in Buicks made in the 1970s and 1980s.) On paper Buicks from the 1970s and 1980s were much better vehicles, coming with fancy features such as shoulder restraints, automatic windows, better mileage, and a suspension system that didn’t allow the $#%^ing boat to rock for a twenty-three minute window after every turn.

My guess is that the 1970s and 1980s models were also better for GM’s profitability, at least at first. After all, they had to be replaced a lot sooner, which meant more cash flow. At least at the time. But eventually, people stopped buying American vehicles. I had three American cars before I called it quits. The aggravation of dealing with all the little things that went wrong wasn’t worth the hassle. Its not just that the vehicles themselves had issues; the dealers I dealt with weren’t much better. All sorts of bits and pieces like vent covers and knobs fell off my then brand-new Camaro, and the windows never sealed properly from day one, but none of the dealers ever fixed these problems.

As I see it, computer manufacturers today are emulating GM in the 1970s and 1980s. They’re starting the process of driving away their customer base. What makes their situation, for now, better than GM’s in the 1970s and 1980s is that it seems like all the computer makers are doing it. There is nobody out there producing quality machines, even at slightly higher prices. I suspect there is a market for more reliable machines – even if that reliability comes at the expense of a few features or a higher price, provided its advertised and sold that way. It doesn’t have to be engineered to take a bullet, but it does have to work. All the time. Convince me that it does and I’ll pay a premium. And I suspect there are a lot of people like me out there.
___________________________________________
by cactus

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In Which Gred Mankiw Displays Alarming Ignorance about that Giant Glowing Red Triangle Across the River

Robert Waldmann

Suggests that serious readers go read Brad Delong’s comment on Greg Mankiw’s comment on Paul Krugman’s assertion that George Will and Gred Mankiw are “either remarkably ignorant or simply disingenuous.” Totally asking for it, Mankiw also commented on Krugman’s post referring to DeLong and Krugman as a tag team.

I just want to note that Greg Mankiw chooses a very odd example to illustrate his ignorance of basic economic theory.

He wrote

[Obama’s] economic logic regarding the public option is hard to follow. Consumer choice and honest competition are indeed the foundation of a successful market system, but they are usually achieved without a public provider. We don’t need government-run grocery stores or government-run gas stations to ensure that Americans can buy food and fuel at reasonable prices…”

Mankiw chose to talk about the market for gasoline !

OK prof Mankiw I have a proposal. This evening get out of Your office, get on Mass Ave and drive South. You will see a river. Across that river you will see a huge red glowing triangle. Do you know what that triangle advertises ? Yes it’s the Citgo sign. It avertises a publicly owned oil company and chain of gas stations.

So if you have no problem with a public provider of gasoline, why are you opposed to a public provider of health care ?

Somewhat more importantly, the idea that the market for gasoline shows that we can trust the private sector to give us “Consumer choice and honest competition” is beyond bizarre. Ever heard of Standard Oil professor Mankiw ? The fact is that it requires constant struggle to preserve competition and a market based approach of offering a public plan has advantages compared to a litigation based approach.

It just so happens that the health insurance market is not at all competitive in many regions, that profits of large health insurance companies have exploded and that the fraction of money paid to health insurance companies which they send on to health care providers have plummeted. Sort of like the market for gasoline that the private sector gave us before massive public intervention.

America’s health insurance companies had better decide if they prefer a public option or actual enforcement of the Sherman antitrust act. Splitting up health insurance companies (what was done to achieve competition in the market for gasoline) would be rather more disruptive to policy holders (and executives) than allowing the medicare administration to compete with them.

I’d say Mankiw has a point. Health insurance is like gasoline in the sense that the market has failed — that profit seeking corporations have managed to reduce competition to levels such that their profits explode. The main differences are that it’s the 21st century and the President is using a market based rather than a punitive approach to the problem.

Claiming that there is currently a competitive market for health insurance in the USA is like claiming that they sky is green.

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Possibly a Great Paper.

I subscribe to too many RSS blog feeds. So everyone once in a while one pops up and I think, “Should I drop this”?

And so it is with Evolutionary Economics, which occasionally seems like a self-parody of what would happen if you recited Economics 101 cant with an added, even-less-scientific, “evolutionary psychology” glean to it.

However, they occasionally publish interesting work, such as this.

And then there’s the paper they describe as “in Japanese.” Unfortunately, they mean Hiragana script, which thoroughly defeated my efforts in the early 1990s. And while Babel Fish is willing to try, the result is less than encouraging:

ら哲学者や為政者を解放した。また,顕示選好理論によれば,個人の選択を観察すれば,
そのような行動が導かれる効用関数が存在する。効用の個人間比較が問題にならない状況

becomes

…[a]nd others the philosopher and the administrator were released. In addition, according to revelation preference theory, if selection of the individual is observed, the use function where that kind of conduct is led exists. The circumstance where comparison between the individuals of use does not become problem

which has a few verb problems, I suspect.

Anyone want to read and translate and do a guest-post about this one?

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More from CBO’s ‘Long Term Budget Outlook’

by Bruce Webb

In a previous post I highlighted the chapter of CBO’s Long-Term Budget Outlook that pertained to Social Security. But the Report goes beyond that and in fact focuses on two different possible scenarios outlined in the following Table:

The shorthand way of defining ‘extended baseline’ is ‘Bush tax cuts expire on schedule’ while ‘alternative fiscal’ equates to ‘extending tax cuts’. There are additional components like AMT and physician compensation which have been consistently adjusted to avoid the impacts of then current law projections (feel free to expand on this in comments) but the real question boils down to ‘sunset tax cuts’ or ‘extend them’. So what would be the consequences? More figures under the fold.


Under ‘extended baseline’ the deficit in 2035 projects to be 5.6% of GDP. Is this good? Well no, I don’t think it is even acceptable. But it is a lot better place to start that the 14.6% of GDP deficit we get from ‘alternative fiscal’.

Now the above are snapshots. What if we aggregate this over 25, 50, and 75 year intervals? Well you get Box 1-1.

Now these annual and aggregated deficts all need to get financed by borrowing. How does that shake out?

So if we let the Bush tax cuts sunset we buy ourselves about 20 years to figure out what to do long-term. If we extend them we are looking at a situation by 2037 where debt held by the public is a full 200% of GDP as opposed to 75% under current law (i.e. tax cuts sunset).

So those people who are attacking Obama spending effects on the deficit over the next 10 to 20 years using CBO numbers need to confront the fact that there is a lot more long term impact from the foolish policy of tax cuts on top marginal rates.

Let the hot, hot fun begin!

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WTO signals backing for border taxes

rdan


Finacial Times
points us to WTO thinking on trade issues and cap and trade agreements. (log in required)

Countries implementing cap-and-trade systems for greenhouse gases may be able to use border taxes to protect domestic industries, after the World Trade Organisation gave a cautious nod to such measures.

In a report to be published on Friday, written jointly with the United Nations Environment Programme, the WTO said it was possible to implement border measures for environmental reasons under its rules.

EDITOR’S CHOICE
Europe moves to reduce pollutants – Jun-26EU invests in China carbon capture facility – Jun-25Carbon credits placate US farmers – Jun-25Australia delays vote on carbon trading – Jun-25

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Deja Vu Health Care Reform: Hillary Care is the wrong feeling

by: Divorced one like Bush

Ok folks. It’s real, this familiarity with the health care reform debate. It is a real memory you are experiencing, that deja vu feeling. Only, the reason it seems so much as deja vu is because what your being told is the trigger of the deja vu is not the real memory. Hillary Care is not the correct memory for the current debate and thus it “feels” like you have been there before: deja vu. However, you really have been there before, and thus it is a real memory, not a similar feeling. It was Nixon, 1971. And, the experience of the mind games that are being tempted upon you are as real and cautioning a memory as having burned your hand on a hot pan, or caught a knief falling.

February 17, 1971

Ehrlichman: We have now narrowed down the vice president’s problems on this thing to one issue, and that is whether we should include these Health Maintenance Organizations like Edgar Kaiser’s Permanente thing.
Nixon: Now let me ask you…You know I’m not to keen on any of these damn medical programs.
Ehrlichman: This is a private enterprise one.
Nixon: Well that appeals to me.
Ehrlichman: Edgar Kaiser is running this Permanente deal for profit. And the reason that he can, the reason he can do it…I had Edgar Kaiser come in, talk to me about this. And I went into some depth. All of the incentives are toward less medical care. Because the less care they give them, the more money they make.
Nixon: Fine
Ehrlichman: …and the incentives run the right way.
Nixon: Not bad.

February 18, 1971
Nixon’s Special Message to Congress proposing a National Health Strategy

I’m going to start with his last paragraph:

Nineteen months ago I said that America’s medical system faced a “massive crisis.” Since that statement was made, that crisis has deepened. All of us must now join together in a common effort to meet this crisis–each doing

Going forward, I only excerpted the parts related to insurance because the truth now as then is that the real issue when this nation talks about health care reform, is that we are only talking about how the money will travel to pay for it. Cost controls are always second and presented as a results of how the money will travel. Improved outcomes are always third and a result of how the money will travel. Tort reform equals how the money will travel. More people having access? Again a result of how the money will travel.

What follows are Nixon’s arguments for keeping a private system. The points should all sound very familiar. There are a few items however that might surprise you as to him being a republican compared to today’s “republican”. In the end, it is still the republican (and now also DLC) ideology of free market rhetoric supporting a discussion of what I consider the false market in “health care reform”: The third party, the middleman.

This is long after the jump. Please take the time to read Nixon’s words. Reading such history first hand is the only means we have for growing a more mature social personality.

As you read, pay attention to the reasoning and expected results, then compare them to today. Today, is the actual results. The results are what we are living.

Recognize the sales pitch. Recognize the appeal to humanistic needs as part of the pitch for the product. Nixon was not trying to sell a better America. That was just jive talk to sell HMO’s. Recognize such in today’s presentation.

Continuing Nixon’s presentation:
Our record, then, is not as good as it should be. Costs have skyrocketed but values have not kept pace. We are investing more of our nation’s resources in the health of our people but we are not getting a full return on our investment.

This new strategy should be built on four basic principles.
1. Assuring Equal Access
2. Balancing Supply and Demand.
3. Organizing for Efficiency. There are two particularly useful ways of doing this:

A. Emphasizing Health Maintenance. In most cases our present medical system operates episodically–people come to it in moments of distress–when they require its most expensive services. Yet both the
system, and those it serves would be better off if less expensive services could be delivered on a more
regular basis… In short, we should build a true “health” system-and not a “sickness” system alone. We should work to maintain health and not merely to restore it.
B. Preserving Cost Consciousness. As we determine just who should bear the various costs of health care, we should remember that only as people are aware of those costs will they be motivated to reduce them. When consumers pay virtually nothing for services and when, at the same time, those who provide services know that all their costs will also be met, then neither the consumer nor the provider has an incentive to use the system efficiently.

4. Building on Strengths. We should also avoid holding the whole of our health care system responsible for failures in some of its parts. There is a natural temptation in dealing with any complex problem to say: “Let us wipe the slate clean and start from scratch.” But to do this-to dismantle our entire health insurance system, for example–would be to ignore those important parts of the system which have provided useful service…

One of those strengths is the diversity of our system–and the range of choice it therefore provides to doctors and patients alike. I believe the public will always be better served by a pluralistic system than by a monolithic one, by a system which creates many effective centers of responsibility–both public and private–rather than one that concentrates authority in a single governmental source.

A. REORGANIZING THE DELIVERY OF SERVICE

In recent years, a new method for delivering health services has achieved growing respect. This new approach has two essential attributes. It brings together a comprehensive range of medical services in a single organization so that a patient is assured of convenient access to all of them. And it provides needed services for a fixed contract fee which is paid in advance by all subscribers.

Such an organization can have a variety of forms and names and sponsors. One of the strengths of this new concept, in fact, is its great flexibility. The general term which has been applied to all of these units is “HMO”–“Health Maintenance Organization.”
The most important advantage of Health Maintenance Organizations is that they increase the value of the services a consumer receives for each health dollar. This happens, first, because such organizations provide a strong financial incentive for better preventive care and for greater efficiency. A fixed-price contract for comprehensive care reverses this illogical incentive. Under this arrangement, income grows not with the number of days a person is sick but with the number of days he is well. HMO’s therefore have a strong financial interest in preventing illness, or, failing that, in treating it in its early stages, promoting a thorough recovery, and preventing any reoccurrence. Like doctors in ancient China, they are paid to keep their clients healthy. For them, economic interests work to re-enforce their professional interests.

…So is this administration. That is why we proposed legislation last March to enable Medicare recipients to join such programs. That is why I am now making the following additional recommendations:
2. To help new HMO’s get started-an expensive and complicated task–we should establish a new $23 million program of planning grants to aid potential sponsors–in both the private and public sector.
At the same time, we should provide additional support to help sponsors raise the necessary capital, construct needed facilities, and sustain initial operating deficits until they achieve an enrollment which allows them to pay their own way. For this purpose, I propose a program of Federal loan guarantees which will enable private sponsors to raise some $300 million in private loans during the first year of the program.
(In 2009 dollars that’s: $1,594,443,347.32 using the Consumer Price Index, $1,270,112,394.52 using the GDP deflator, using value of consumer bundle, $1,572,128,637.06 using the unskilled wage, $2,589,331,122.17 using the nominal GDP per capita, $3,796,805,962.20 using the relative share of GDP)

F. A NATIONAL HEALTH INSURANCE PARTNERS HIP
In my State of the Union Message, I pledged to present a program “to ensure that no American family will be prevented from obtaining basic medical care by inability to pay.” I am announcing that program today. It is a comprehensive national health insurance program, one in which the public and the private sectors would join in a new partnership to provide adequate health insurance for the American people.

In the last twenty years, the segment of our population owning health insurance has grown from 50 percent to 87 percent and the portion of medical bills paid for by insurance has gone from 35 percent to 60 percent. But despite this impressive growth, there are still serious gaps in present health insurance coverage. Four such gaps deserve particular attention. (Ok, well this has definitely been reversed.)
First–too many health insurance policies focus on hospital and surgical costs and leave critical outpatient services uncovered… Because demand goes where the dollars are, the result is an unnecessary–and expensive— overutilization of acute care facilities. The average hospital stay today is a full day longer than it was eight years ago. (Yup, fixed that one.)

A second problem is the failure of most private insurance policies to protect against the catastrophic costs of major illnesses and accidents. Only 40 percent of our people have catastrophic cost insurance of any sort and most of that insurance has upper limits of $10,000 or $15,000. This means that insurance often runs out while expenses are still mounting. For many of our families, the anguish of a serious illness is thus compounded by acute financial anxiety. Even the joy of recovery can often be clouded by the burden of debt–and even by the threat of bankruptcy.
A third problem with much of our insurance at the present time is that it cannot be applied to membership in a Health Maintenance Organization–and thus effectively precludes such membership. No employee will pay to join such a plan, no matter how attractive it might seem to him, when deductions from his paycheck–along with contributions from his employer–are being used to purchase another health insurance policy.

The fourth deficiency we must correct in present insurance coverage is its failure to help the poor gain sufficient access to our medical system. Just one index of this failure is the fact that fifty percent of poor children are not even immunized against common childhood diseases. (We are above 80% now.) The disability rate for families below the poverty line is at least 50 percent higher than for families with incomes above $10,000.

Our National Health Insurance Partnership is designed to correct these inadequacies–not by destroying our present insurance system but by improving it. Rather than giving up on a system which has been developing impressively, we should work to bring about further growth which will fill in the gaps we have identified. To this end, I am recommending the following combination of public and private efforts.

1. I am proposing that a National Health Insurance Standards Act be adopted which will require employers to provide basic health insurance coverage for their employees. (Guess that answers the question of why we have an employment based system. Oops! Hey, no Walmart then either.)

2. I am also proposing that a new Family Health Insurance Plan be established to meet the special needs of poor families who would not be covered by the proposed National Health Insurance Standards Act–those that are headed by unemployed, intermittently employed or self-employed persons.
Accordingly, I propose that the part of Medicaid which covers most welfare families be eliminated. The new Family Health Insurance Plan that takes its place would be fully financed and administered by the Federal Government. It would provide health insurance to all poor families with children headed by self-employed or unemployed persons whose income is below a certain level. For a family of four persons, the eligibility ceiling would be $5,000.
(I’ll say it for Fox News: Democrat President Nixon today proposed…)

Our program would also require the establishment in each State of special insurance pools which would offer insurance at reasonable group rates to people who did not qualify for other programs: the self-employed, for example, and poor risk individuals who often cannot get insurance. Did I hear something about co-ops?)

I also urge the Congress to take further steps to improve Medicare. For one thing, beneficiaries should be allowed to use the program to join Health Maintenance Organizations. (Well it took 30+ years, but they got that: Medicare Advantage.)

…To begin with, there simply is no need to eliminate an entire segment of our private economy and at the same time add a multibillion dollar responsibility to the Federal budget. Such a step should not be taken unless all other steps have failed.
More than that, such action would be dangerous. It would deny people the right to choose how they will pay for their health care. It would remove competition from the insurance system–and with it an incentive to experiment and innovate…There is a better way–a more practical, more effective, less expensive, and less dangerous way–to reform and renew our nation’s health system.

38 years since this speech. A speech that has all the same talking points regarding a private, free market based system as we heard with Hillary Care and today. We did the employer based HMO version of private insurance after the other version (BCBS employer based) did not work including the HMO medicare experiment in this decade. We are worse off than ever by all reports from all parties. It was not “ a better way–a more practical, more effective, less expensive, and less dangerous way…”. It has failed. People are in more danger today. All other ways have failed: a no health insurance system, an employer based non-profit private system, an employer based for profit private system and privatizing a single payer, government run system. The time has come. We have met the exception that Nixon gave the nation. We can now prove or disprove that there is such a creature as the “rational consumer”.

Ehrlichman: Edgar Kaiser is running this Permanente deal for profit. And the reason that he can, the reason he can do it…I had Edgar Kaiser come in, talk to me about this. And I went into some depth. All of the incentives are toward less medical care. Because the less care they give them, the more money they make.
Nixon: Fine
Ehrlichman: …and the incentives run the right way.
Nixon: Not bad.

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