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

Ignani and the Ignavi

Robert Waldmann

AHIP The health insurance lobby just declared war on the Baucus plan. This is new, since they previously supported health care reform. It is not, however, surprising. AHIP made its condition clear, they would support health care reform provided that all were insured. Basically the individual mandate was the price for their support.

Displaying his usual inverted political genius, Baucus decided to water down the individual mandate so that some people are allowed to go without insurance. He was trying to compromise with Republicans, well in this case, with a Republican — Olympia Snowe. Thus he violated the terms of a very clear very public agreement with AHIP. It’s not as if I didn’t warn on September 2 that this is a terrible idea.

Now Baucus has lost AHIP and Snowe remains officially undecided. He dumped AHIP Prsident Karen Ignani in a bid for the Ignavi (I make that plural to refer to the Divine Comedy but pretend it is to include Nelson or Lieberman or someone).

Update: Maybe I was wrong. Maybe Baucus is an even more brilliant 11 dimensional chess player than Obama (a 12 dimensional chess player) and he knew that provoking AHIP was a brilliant strategy. The line from an anonymous “finance committee aide” is that AHIP’s attack is good for Baucus. The idea seems to be that Senators are angry with AHIP and don’t want to appear to take instructions from AHIP (doesn’t mean they don’t want to take the instructions, it just means that they don’t want it to be obvious as in changing their position the day before the big vote after a very public command).

Of course I assume that “a finance committee aide” would not make a totally bogus claim in support of the view that Sen Baucus is a genius and certainly wouldn’t demand anonymity if the claim were totally bogus. Nahhh that’s just not the way Washington works.

I’d guess that the bought and paid for insurance industry senators (definitely including Sen Baucus) aren’t even capable of being good fiduciaries of insurance company shareholders — that there obsession with compromising, watering down and settling for half a loaf (and above all pissing of the left wing of the party) lead them to water down the individual mandate which is much more critical to insurance company profits than is the avoidance of a public option.

update 2: Kevin Drum has the same theory as I do, but he writes much more goodly.

update 3: Yves Smith ways in
More comments after the jump.

Interestingly the AHIP broadside is not a press release. It is an A1 article by Ceci Conolly in The Washington Post. I thought the Washington Post was a subsidiary of the test prep industry not the health insurance industry (live and learn).

Dougj notes that The Washington Post publisher invited health industry players to pay for access to Ceci Conolly and writes “There’s a pretty strong prima facie case for pay-to-play here.”

Also AHIP didn’t just say the Baucus bill is a bad bill which will cause insurance premia to increase. They commissioned a study from PricewaterhouseCoopers to conduct an analysis (it must be an analysis there are lot’s of numbers in it) and a frightening possible price tag. PricewaterhouseCoopers clearly explains, in the text of their analysis, that they made extreme and implausible assumptions to make the calculated number as large as possible. AHIP and PwC assume that they know how journamalism works. Journalists don’t look at the assumptions or any non headline number so credibility can be bought (although I didn’t know that PwC had any left to sell). John Cohn read the fine print so you don’t have to.

I’m not sure if the old approach will work now that serious journalists have to worry about geeks who actually read the analysis that interest groups buy. OK I’m pretty sure it will still work.

update: looks the approach of anonymous sources praising their bosses still works.

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Regulatory Capture of the USDA

by cactus

Time to End Regulatory Capture of the USDA by the Meat Packing Industry

A couple years ago, I had a post looking at particularly egregious case of regulatory capture. I noted that the gubmint refused to allow a small meat packing company to test all of its beef for mad cow disease. The reason, of course, is that allowing the company to do so would set up a standard that the market might then expect other companies to meet. (Apparently the folks who believe in a free market don’t believe companies should be allowed to compete on quality, where quality is measured through testing.)

For a while, this was a bone of contention with Japan – the impasse was eventually resolved by the requirement that any beef shipped to Japan undergo additional testing and certification. This weekend the AP is reporting that one of Tysons’ plants (a repeat offender, by the way) got itself into trouble by shipping some no-no meat into Japan.

I particularly like this line from the story:

Gary Mickelson, a spokesman for Tyson, called the delivery of that box a mix-up.

Yeah, it was a mix-up alright. I can only assume that box was intended for American consumers.

Memo to Obama: here’s a Bush era regulation that most of us would be better off without.
by cactus

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Mashup Post: Two Marks

No original content here, just two posts that make even more sense together:

  1. Mark Thoma proves he’s an economist (not just an econometrician) by reminding everyone of the Opportunity Cost of the Oughts from a long-term perspective*:
    ((Rdan…Attribution of the quote is in error due to a format error at Mark’s…the original is from Joseph Stiglitz at Korean Herald)

    [T]he worst effects were on our human capital, our most precious resource. Absurdly generous compensation in the financial sector induced some of our best minds to go into banking. Who knows how many Borlaugs there might have been among those enticed by the riches of Wall Street and the City of London? If we lost even one, our world was made immeasurably poorer.

  2. Mark Cuban summarizes the effect of that skew in the short term**:

    The beautiful thing about this country is that we like to work hard, and we like to take chances. Unfortunately, over the last 15 years, the incentives have been to take chances as a financial engineer rather than as an entrepreneur. We give far more money to people who play games with financial instruments than we give to people who come up with ideas for the next big thing. That needs to change if we want to remain a leader in this world. [emphasis his]

I have quibbles, but the direction and magnitude of the two above is correct: a massive reallocation of incentives that diverted talent from potential paradigm-shifting development to incremental risk re-allocation and obfuscation. The rest of us were just, well, marks. *Maybe more on this one later, from another angle. **Though he has a rather generous, imnvho, definition of an “investor.” But even by that weak definition, his point stands.

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Success of the Surge

by Bruce Webb

John McCain and others have been all over TV arguing that the success of the Surge in Iraq proves that we should just go ahead and throw forty thousand more troops on top of the twenty thousand sent in March to Afghanistan. Well ignoring for the moment that where the surge increased U.S. forces by about a third and this combination of surges represents a doubling, why do we conclude that the surge was a success to start with? What was the baseline against which we have our metric?

Back in the day we had a commenter here who insisted that those of us who resisted the surge were clearly proved wrong by the calm conditions in Anbar Province, and particularly Falluljah and Ramadi, my didn’t we feel silly? Well no and items like this from today show why. Deadly Blasts Target Police, Government Buildings in Iraq

Sunday, October 11, 2009; 10:33 AM
BAGHDAD — Three car bombings targeted a police station and a government headquarters in Ramadi in western Iraq on Sunday, killing at least 18 people and underlining the precarious situation in Anbar province.

And in the same story we have this:

The bombings came a few days after a truck piled with explosives detonated outside a police station in Amiriyah, about 10 miles south of Fallujah, killing nine people. The town was once known as the stronghold of the insurgency.

The surge was marked by a sharp spike in U.S. casualties starting when troops were there in full strength in Fall 2006 and stayed high until the end of the full force of the surge the next summer, leading 2007 to be the second highest year for coalition casualties. Now certainly deaths fell off after that but some might argue that was the result of the deal Bush signed to withdraw all troops by 2010. The question is what did the surge actually buy the IRAQIS that justified so much sacrifice from the US? How is it that two years after the surge the situation in Anbar, triumphumantly held up as proof of the surge’s effectiveness is now described as “precarious”.

So I want to ask a version of the question posed the other day. Can we actually Score the Surge? By what numeric, social or political metric is it really a success. That less soldiers are getting killed after than during could be said for just about any battle, anywhere. Once the battle or war is won or lost relatively fewer people get killed, that is not in itself a metric of success.

I don’t bring this up just to pick at a barely healed scab. In the new drumbeat for war it is held up that people who opposed the surge have been proven to be soft-headed idiots. Well can someone put that in quantifiable terms? We had an Iraqi election, and now we are going to have another one, and a lot depends of whether Maliki can pull this out. If not things might get a little messy as an Iranian friendly regime takes power. So, Got Numbers? A Hard Metric? Anything more than ‘We told you so!’

Maybe the success is self-evident to everyone in the world radiating from the beltway outwards, maybe it just hasn’t reached me here. But I don’t see anything bought in 2006 and 2007 that we couldn’t have got by having Bush sign that troop withdrawal deal two years earlier than he ultimately did.

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The Fed’s attempt to assuage inflation fears that don’t need assuaging

by Rebecca

There is no shortage of speeches by US central bankers these days. The following is an excerpt from a NY Times article that highlights the debate among key Fed officials about the speed and method of stimulus withdrawal once the decision to exit has been made:

Mr. Bernanke and other officials want to see evidence that the economic recovery is self-sustaining, strong enough to generate jobs without the crutch of extremely low interest rates.

But Mr. Warsh, as a Fed governor, has begun arguing that the central bank cannot afford to wait for irrefutable evidence of a solid expansion. Mr. Warsh recently argued that the Fed should take at least some of its cue from stock prices and other financial indicators, which turn around earlier and more quickly than the underlying economy.

Mr. Warsh and some other Fed officials also argue that when the time does come to change gears, the central bank may have to raise rates almost as fast as it slashed them when the crisis began.

We are far from seeing “irrefutable evidence of a solid expansion”. This debate is likely confusing the public more than anything else, or as my title puts it: the Fed is attempting to assuage inflation fears that don’t need assuaging. There is simply no measured inflation concern at this time, not even over the next ten years.

The chart illustrates the 30-day moving average of expected inflation for the next 5, 7, 10, and 20 years. Expected inflation, roughly speaking, is the nominal Treasury Security rate minus the associated Treasury Inflation-Protected Security (TIPS) rate, the real rate of return or the break-even rate. Technically this break-even rate is not a perfect measure of inflation expectations; but it’s close and measured daily (see this SF Fed article for more on TIPS).

The “inflation problem” is way overstated in the media. Roughly speaking, markets have priced in just 1.3% annual inflation each year over the next five years, 2% over the next ten years.

By giving speech after speech (Bernanke’s latest), the Fed is attempting to keep inflation expectations in check. However, the Fed is walking a fine line between alleviating concerns about long-term inflation prospects and overemphasizing the short-term disinflation (deflation) risks.

Rebecca Wilder

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About Angry Bear

Angry Bear 2009:

The Wall Street Journal, 24/7 Wall Street and Time CNN named Angry Bear among the top 25 independent economic blogs on the net.
As quoted at CNN “… Angry Bear is the product of a half dozen Ph.D economists, an historian, and financial professionals. The writers provide individual perspectives on broad sectors of the economy based on their unique training. They look at topics as varied as worldwide trade and industrial production and US government programs and regulations like Social Security.”

In no particular order our current economists are Cactus, Divorced one like Bush, Ken Houghton, Spencer England, Stormy, Robert Waldmann, Tom Bozzo, Linda Beale, and Rebecca Wilder. Bruce Webb has added his expertise in particular on Social Security and current healthcare debate. Rusty(formerly Save the Rustbelt) adds his expertise on the health industry and mid-west. Noni Mausa is a professional writer and poet, who brings us a dose of reality.

Rdan: Rdan and Angry Bear blog

In alphabetical order:

Linda Beale I am a law professor at Wayne State University Law School who teaches various courses in the area of federal income tax, such as introduction to federal income tax, corporate taxation, partnership taxation, international taxation and perhaps in the future a course in statutory interpretation focussed on tax. I think that the tax system should reflect the values of ordinary Americans and our long-held belief in principles of liberty, equality and community.

I fear that we have instead tended to give too much credence to purportedly “objective” ideas about taxation based on the rationales of law and economics and unverified theories about economic growth and too little credence to human needs for community that require allocating the burdens and benefits of the tax system fairly among the people and entities that make up our system. She maintains her own blog ataxingmatter as well.

Tom Bozzo: I’ve worked in consulting since 1996, mostly on issues pertaining to more-or-less regulated firms — especially in the postal, telecom, and railroad sectors. I live in Madison, Wisconsin with my oh-so-non-economist wife and two preschool-age children (who would occasionally make guest appearances at my old blog), and occasionally get time on the computer when it’s not being used for sessions of Elmo’s Keyboard-O-Rama.

Cactus: An economist for a private corporation and author of a book to be published June 2010.

DolB: I am a liberal. A label that “progressive” is used in exchange with. I am not a radical, fascist, loony, left winged, socialist, commie. In fact, I am rather ambidextrous. Please look up all such terms before you start applying them to my writings here. I like to learn. I love to discuss such that the discussion resolves into my having learned. My qualifications as it relates to blogging at AB are generic compared to the economists here.
I have two businesses; a practice in the health care field and a retail business of flowers and plants. I have served as an officer of 2 non-profits and my state society. I have testified before my state legislature. I have personally won in my state supreme court. I have been locally politically active including sitting on a commission and the zoning board.
You can learn more personal stuff about me here here and here.

Ken Houghton: A principle in his own company and former economist for several major financial companies.

Noni Mausa: Noni is a professional writer and poet who frames economic issues in an eloquent and understandable manner.
Spencer: Before I started my own consulting business I was an economist for the CIA for 10 years and worked for a couple of Boston investment management firms as their in house economist, investment strategist for some 12 years. My original field of study was international economics and international finance.
I just celebrated the 20th anniversary of publishing SEER — my equity strategy product. I model the S&P industries and advise portfolio managers on how to structure their portfolios by recommending industry weights.

Rusty (formerly Save the Rustbelt): Tom has 30 years involvement in health care as a CPA, management consultant, medical practice executive, public policy wonk, writer, seminar leader, and litigation analyst. His newly started blog on national health care issues can be found at Health Care Think Tank.


Robert Waldmann: …born the day after Kennedy was elected (November 9 1960).
I have a PhD in economics (Harvard 1989) and teach economics at the
University of Rome “Tor Vergata”. I wasn’t always like this. I have a bachelor’s degree in biology.
Oddly, I don’t blog much at my own site rjwaldmann about economics or Italy. Currently, I am obsessed with Obama, but I’ll try not to bore people with stuff they already read 10 times today.
As an economist (roughly) I am interested in behavioral economics, growth, and the economics of inequality. Actually much of my current research, such as it is, is really in econometric methodology and statistics. I was very unorthodox in the 80s, but the orthodoxy is much less rigid now.

Bruce Webb:I am by training a historian and mythologist who then has spent my working career in information retrieval and land use regulation. My interest in Social Security arose when I noticed in passing that the dates related to ‘crisis’ were moving but that nobody seemed to be noticing that and still less asking the key questions ‘why?’ and ‘can this go on?’ So I set out to try to answer those questions and then share the results which somehow led to a gig here at AB. Politically I am somewhat left of left of center and could best be described as a ‘New Dealer’ and so weigh in on more overtly political questions as the opportunity arises.

Rebecca Wilder: After receiving my Doctorate in Economics, I was an assistant professor for two years. However, I realized that teaching just wasn’t for me and took a job in private sector. Now, I am an Economist in the financial industry.

As an economist in finance, I analyze data, write commentary, and offer economic insight to traders, chiefs of staff, and really anyone who wants my opinion. It is in this job that I developed a fancy for writing, but mostly I love talking about economics to anyone who will listen. She maintains her own blog Newsneconomics as well.

History of Angry Bear:
Written by Cactus

The eponymous Angry Bear blog is the brainchild of… Angry Bear (“AB”), who founded the blog in February of 2003. The title of the blog reflects his emotional reaction (anger) to his view of the state (bearish) of the state of the economy when the blog was founded. Sadly, he had cause to maintain that sentiment for quite a while.

Kash Mansori joined the blog in August 2003, and PGL arrived a year later. AB, Kash, and PGL formed the core of the blog for many years. Each has a Ph.D. in economics, but AB’s focus is on microeconomic issues, Kash’s are in macroeconomic issues, and PGL’s training is in finance.

Neither AB nor Kash has posted here in a while, but we hold out hope for their eventual return. We also hold out hope for the return of CR, who posted for several years at both Angry Bear and his own blog, Calculated Risk. However, we can at least continue to enjoy his insights on real estate at the Calculated Risk blog.

Since 2006, Angry Bear has added more regulars – some have remained, some have stayed for a while and then moved on. Our current regulars include Cactus, Spencer, Rdan, Divorced one Like Bush, Save the Rustbelt, and Stormy, and of course PGL.In 2008 we added two economists Tom Bozzo and Ken Houghton. Bruce Webb and Robert Waldmann, Linda Beale , Rebecca Wilder and Noni Mausa are now regulars. Not all the regulars are economists by training, but then nobody is perfect.

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Adam Smith in a broader context

by guest poster Gavin Kennedy

(Rdan-A reader comments on the Research Agenda post on Adam Smith. The comments could not handle the volume of text, so I took the liberty of putting up the comment and the response. Good work guys):

The reader suggests Mr. Gavin consider the following quote and his explanation:
Adam Smith in the Wealth of Nations

As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

(Reader then comments on the above quote he provided…)

Society is made up of individuals. The sum product in terms of goods and services produced by society is the output of the economy. If everyone is producing as much as they can individually, whether it be teacher, truck driver, artist, investment banker, or Michael moore, then collectively the economy is producing at an optimal level. Individuals are motivated by maximizing the things they want such as earning money, getting the satisfaction of teaching children, or making movies with a social concious while making money. Its what motivates us as individuals that is the invisible hand as opposed to some dictator or monarch trying to direct the economy and telling us all what to produce and how we are to be employed. Adam Smith was trying to offer an alternative to the tyranny and brutality of royalty. The liberals in my view want to dive is back to the days when the central authority such as the king called the shots. Us and the progressive right say not thank you…

Mr. Kennnedy responds below the fold: Research Agenda

As always with ideas from the 18th century, they are bit more complicated than they seem at first, and in what they have become to mean in the 21st century, as with the invisible hand metaphor, which after 60 years of truncated quoting and misapplying of it, its original innocence is almost lost in myths.

The partial quotation you make from the paragraph in Wealth Of Nations eliminates the actual context of which Smith wrote (WN IV.ii.9: 456). Indeed, in the truncated form you offered, the immediately previous eight paragraphs are also important (WN IV.ii.1-8: 452-55).

I urge you to read them. Should you do so, you will realise that Smith was not making a general statement about society’s “output of the economy”; he was writing about the effects on national output arising from the risk-avoidance of some, but not all, merchants who prefer to invest domestically rather than abroad because of the greater risks of overseas trade (all explained in paragraph 6, page 454) and also specifically identified in the invisible hand paragraph 9: “he intends only his own security”.

The actual “rule” that Smith, incidentally an accomplished mathematician, speaks of, is the arithmetic rule that “the whole is the sum of its parts”, in this case, the greater the number of merchants investing locally, the greater the national output and the resultant employment and “progress to opulence”.

My contributions on Adam Smith are made as an educator, not as a propagandist for this or that interpretation of Adam Smith’s writings. I cannot comment on the role of “liberals” or “progressives”, as the Atlantic divides the meanings of these words so much that they have come to mean their opposites on both sides!

Thank you for commenting on my contributions.

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Green Shoots Data Defined

As a rule, the Shiller Index uses the CPI as reported for All Urban Consumers (CPIAUCNS on Fred(r)).

But the Index is only updated Quarterly, so monthly data is estimated. Which produces a very interesting difference over August, not to mention September expectations:

The annualised inflation rate between June and August is 0.39%, which just shows that the trend is volatile. But if there really is another round or two of 2.5% annual inflation, the projected 3% growth for Q3 is either going to look a lot more anemic than we think, or there is going to be a major producvtivity increase.

The odds of being paid the Marginal Product of Labor just dropped a bit more.

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