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Health Care Thoughts: Recommending Brad Delong

by Tom aka Rusty Rustbelt

Health Care Thoughts: Recommending Brad Delong
When he is not snarking up a storm on his blog or educating Berkeley’s young skulls full of mush Brad does some solid academic work.

In concert with Prof. Ann Marciarille (Mrs. Delong if I remember correctly) Delong has posted an interesting piece to SSRN, entitled Bending the Health Cost Curve: The Promise and the Peril of the IPAB.  the article explores the promise and perils of the Independent Payment Advisory Board (IPAB), a major feature of PPACA.

This is a balanced piece with a lot of good background information.

Having been involved in the policy and details of Medicare and Medicaid reimbursement since the late 70s I am more skeptical of technocrats and bureaucrats, but I do see potential, and do see the need. (I also intend to write something about the technical aspects of Medicare reimbursement, but several editors are whipping me now so pleasure work will have to wait).
If you have any interest in health care policy and operations, read the Delong piece, well worth the time.

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The New York Times confirms that Bain Capital really, really REALLY did not want to lend GM and Chrysler money for their managed bankruptcies. Really.

According to an article in today’s New York Times, Bain Capital was asked to do so, but declined.  Well, actually it was asked to help GM out, and declined.

The article recounts much of the controversy concerning Romney’s actual position on a government bailout for the companies back in 2008-09 and his current statements about it, and how these are playing out now politically here in Michigan and possibly in other states in which there is a heavy auto-industry presence.  About two-thirds down, the article says:

To go through the bankruptcy process, both companies needed billions of dollars in financing, money that auto executives and government officials who were involved with Mr. Obama’s auto task force say was not available at a time when the credit markets had dried up. The only entity that could provide the $80 billion needed, they say, was the federal government. No private companies would come to the industry’s aid, and the only path through bankruptcy would have been Chapter 7 liquidation, not the more orderly Chapter 11 reorganization, these people said.

In fact, the task force asked Bain Capital, the private equity company that Mr. Romney helped found, if it was interested in investing in General Motors’ European operations, according to one person with direct knowledge of the discussions.
Bain declined, this person said, speaking anonymously to discuss private negotiations.
This is an especially serious matter because the very foundation of Romney’s candidacy is his vaunted business acumen.  If he really believed that private funding existed for managed bankruptcies of these two companies, then he based that belief on something other than fact, something other than evidence.  And if, as is likely, he well knew that no private funding would be available, and that without government funding these companies’ bankruptcies would be liquidations, then why was he claiming otherwise?

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A final (for now) comment on Romney’s virulent hostility toward the UAW (and organized labor in general, and union members)

Late Tuesday night, a Washington-based blogger for The Economist who covers U.S. politics posted a several-paragraph takedown of Romney’s op-ed published that morning in the Detroit News.  I learned of the op-ed yesterday when I read a then-two—day-old entry about it by Matthew Yglesias (not a favorite of mine, but I’ll leave that subject for another post) on Slate’s Moneybox blog. The key paragraphs of the Economist post are:

The purpose of Mr Romney’s op-ed is to clarify his position on the auto bail-out ahead of Michigan’s primary on February 28th. And the piece rivals Cirque du Soleil in its display of contortions. Mr Romney seems loth to gush about the success of the bail-out, noting only the good news that “Chrysler and General Motors are still in business”. He certainly doesn’t mention that 2011 was the best year for America’s carmakers since the financial crisis, with each of the big three turning a solid profit. But he does imply that this achievement is a result of his own advice. “The course I recommended was eventually followed”, Mr Romney writes.

As with much of Mr Romney’s excessive rhetoric, there is some truth to this statement. Following the bail-outs, the president eventually forced Chrysler and GM into bankruptcy, a step Mr Romney thought should occur naturally. And the government oversaw painful restructurings at both companies, which were largely in line with Mr Romney’s broad suggestions. But the course Mr Romney recommended in 2008 began with the government stepping back, and it is unlikely things would’ve turned out so well had this happened.

Free-marketeers that we are, The Economist agreed with Mr Romney at the time. But we later apologised for that position. “Had the government not stepped in, GM might have restructured under normal bankruptcy procedures, without putting public money at risk”, we said. But “given the panic that gripped private purse-strings…it is more likely that GM would have been liquidated, sending a cascade of destruction through the supply chain on which its rivals, too, depended.” Even Ford, which avoided bankruptcy, feared the industry would collapse if GM went down. At the time that seemed like a real possibility. The credit markets were bone-dry, making the privately financed bankruptcy that Mr Romney favoured improbable. He conveniently ignores this bit of history in claiming to have been right all along.

But the next paragraph, the final one in the post, begins:

In other areas of his op-ed Mr Romney is more accurate. Unions did win some special favours in the bail-out deals, though they are not as egregious as the candidate claims. For example, a health fund for retired workers was unfairly favoured over secured bondholders at Chrysler.

Forgive me if I’m missing something here, but why, exactly, was it unfair for the Obama administration to force the favoring of a health fund for retired workers over secured bondholders at Chrysler in the government-funded restructuring of that company?  Don’t bondholders take the risk of default when they purchase the bonds?  Don’t investors risk losing all or part of their investment when they invest?  Isn’t that an inherent part of capitalism?

And while it’s true that in bankruptcy proceedings, pension and other retirement-benefit agreements, including those negotiated in labor agreements, can be dissolved or significantly altered, why—considering that retirement benefits are given as deferred payment for the workers’ labor—is it unfair for a government that is funding a “managed” bankruptcy to favor a health fund for retired workers over bondholders?

This strikes me as at the very heart of what Mitt Romney is about: his bald preference for government policy that favors the wealthy over everyone else.  Santorum probably will win the primary in Michigan and the primary in Ohio a week later.  But what will put him over the top in these rustbelt states is not the social conservatives but instead blue-collar voters whose primary (and general-election) concern (yes, pun intended), is economic policy. 

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Keynes vs Modern Macroeconomics

This might be a mistake, but I am bringing a discussion from my personal blog over here (links after the jump).

I have a challenge. Can anyone think of a useful insight in macroeconomic theory which isn’t clearly stated in “The General Theory of Employment Interest and Money” ?

By “useful” I mean that it has been used to predict macroeconomic variables. I am not asking about something which is useful in obtaining insights which will, in the future, be useful for prediction macroeconomic outcomes or guiding policy (predictions of predictions don’t count).

Importantly, by useful I definitely do not mean “used by policy makers.” To violate Goodwinski’s law, Lysenko’s research was used by a policy maker, but it was not useful.

By macroeconomic *theory* I mean something other than improved estimates based on new data and uh you know having a computer (or even the idea that such things might exist). Keynes’s estimates of magnitudes were guesses.

Finally, arguments that something added to the literature after the publication of The General Theory was a big mistake doesn’t count, even if it is valid.

My question is about the insights we have obtained and whether any is both actually an insight (as demonstrated by empirical success) and new to Keynes.

Uh oh. I’ve been planning this for days, but I now wonder about an example. I think Keynes assumed prices were flexible and that Joan Robinson and Gardiner Means* had something useful to add.

A final warning: I asked about “The General Theory …” It is very unwise to assume that all ideas in that book were copied or effectively summarized in old introductory Macroeconomics textbooks.

I will respond in comments to proposed examples. The responses will be either
1) The concession that the challenge has been met
2) an argument that there is no evidence that the alleged insight is actually empirically useful
3) a quotation from “The General Theory of Employment Interest and Money” and an explanation of why I think it expresses the allegedly newer idea.

Update: Well that was quick. JW Mason has many suggestions in comments. One is my one concession Robinson had stuff to say about imperfect competition and price setting which was new to Keynes (also Kalecki but he wasn’t exactly after Keynes).

This is related to my key concession. Yes indeed, in the GT Keynes asserted that real wages were necessarily counter cyclical. They aren’t (at least not strongly). I think this is related to the pre-challenge concession above — a popular non crazy explanation is based on sticky prices.

I reply to the other suggestions in comments.

*update 2: Truncated sentence completed and a name corrected.

Simon Wren-Lewis has been writing about the anti-Keynesian school of thought and how he considers the so called new Keynesians (such as himself) to be the mainstream of modern macro.

I was very rude in comments.

He replied pllitely.

Also Mark Thoma argued that he was not an old Keynesian and I was very rude to him too. He was kind enough to reply very politely (and link)

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Clarification (my final one, I hope)

I just want to clarify again that the title of my original post, “Breaking news: Bain Capital wanted to lend money to GM and Chrysler for managed bankruptcies,” was intended as facetious, and that I had no idea that there was a recent report, rescinded as it turns out, that Bain Capital had been involved somehow in discussions with the Obama administration about the auto bailouts in early 2009.  Much less did I know that Bain Consulting apparently did advise the Obama administration concerning whether to go forward with the auto bailouts that the Bush administration had set in motion.   (Formally advised the Obama administration? At the request of the Obama administration? I have no idea.)

The point of that first post was to highlight that while Romney apparently has been claiming that Chrysler and GM could, have found private funding for “managed” bankruptcies (and that this somehow would have resulted in no layoffs, or fewer layoffs, or something), the absolutely clear truth, as both the Bush administration official and the Obama administration officials involved in the auto bailouts, have said all along, there was no private funding available to finance these huge restructurings, and so without the government bailouts these bankruptcies would have been liquidations.  Bain Capital is a venture capital operation, yet it did not offer to fund managed bankruptcies for these companies.  Either did any other private-investment company.

The title of that post was supposed to highlight that Romney’s claim is false. There was no private capital available, from Bain Capital or Goldman Sachs or any other firm, for “managed” bankruptcies of these companies—bankruptcies that would have allowed these companies to remain operational and recover.  My second post, “BREAKING NEWS: Bain Capital Really, Really, REALLY Did Not Want to Lend GM and Chrysler Money For Their Managed Bankruptcies!*”, which discussed Bain Capital’s PR agent’s email to Dan, explained this.  Or tried to.

But here’s another clarification: As several commenters to my posts have pointed out, Bain Capital and Bain Consulting are not as unrelated as Bain PR agent Lusk wants y’all to think.  They’re separate legal entities, and Bain Consulting, unlike Bain Capital, does not actually buy companies, in highly-leveraged purchases or otherwise, and restructure them.  Instead, they just sorta, I guess, arrange for others to do that.  Still, these two companies are … oh, I don’t know …second cousins, once removed?

Meanwhile, on the other subject of my posts of the last few days: Romney’s weird ad playing on the local evening news shows here in Michigan, in which he incoherently attacks Obama, as per “the liberals’” demands, he says, for negotiating with the UAW and obtaining only those union concessions necessary to allow these companies to emerge from bankruptcy and become profitable again?  According to an article in yesterday’s Washington Post, Which I read last night, Romney’s been making virulently anti-organized-labor, and especially anti-UW, statements a regular part of his speeches at campaign stops throughout Michigan in the last week or so, because he thinks Tea Partiers are anti-labor and, in Michigan, are especially anti-UAW. 

Ooookay. So this guy, who made more than $200 million running a “restructuring” venture capital company, thinks a virulently anti-organized-labor stance will help him get elected president, when his chosen Exhibit A is a union whose members made large concessions in order to keep their employer companies afloat and whose employer companies are now very profitable under the revised union agreements.

My only fear is that in the general election, Obama won’t point this out.  Although the unions will.  And if news coverage of the primary campaign in Michigan this week is any indication, so will the news media.

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PR firm and the election

This article Billionaire Romney donor uses threats to silence critics by Glenn Greenwald caught my attention given the amazingly quick reaction (in my opinion) to Beverly Mann’s post Breaking news: Bain Capital wanted to lend money to GM and Chrysler for managed bankruptcies.

Beverly  mentioned Bain Capital instead of Bain Consulting in the title. Also read Beverly’s responses BREAKING NEWS: Bain Capital Really, Really, REALLY Did Not Want to Lend GM and Chrysler Money For Their Managed Bankruptcies!”* and Romney reads Angry Bear*.

Not directly connected of course…but we have never had a PR firm notice us before. Thanks!

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The relation between high college tuition and low state funding of higher ed: the right’s austerity agenda

by Linda Beale

The relation between high college tuition and low state funding of higher ed: the right’s austerity agenda
As certainly everyone should be aware by now (after almost 20 Republican candidate debates and months of negative campaign ads), the GOP candidates all think that we need to prescribe an austerity budget for state and federal governments. “Too much spending” they yell. “Too high taxes”, they scream. “It makes our big corporations uncompetitive”, they whine. “We need to break the backs of unions so public workers are as poor as workers in private industry, but still give tax cuts to the wealthy”, they assert, “so jobs can trickle down to the poor”. See, e.g., Arthur B. Laffer (yes, he of the laughingstock napkin-drawn Laffer “curve” projecting his view that cutting revenues from taxes increases revenues), “The States are leading a pro-growth rebellion,” Wall St. Journal, Feb. 11-12, 2012, at A11 (lauding the move to free-rider states, where stingy workers can get the benefits from the results of collective bargaining agreements without paying for the costs of supporting the union that got those benefits from them, thus starving and “busting” the union; gloating over the fact that California didn’t adequately fund its state workers’ retirement plans and that the anti-tax movement will keep it from doing so now).
That’s a prescription for disaster.

What our representatives in Congress need to do is look around them–preferably after driving at least 100 miles outside of the insulated Beltway and seeing some of the real country and its people.

We need federal programs that ensure a minimum standard of living for our people. We need a universal, “single payer” system of health care that kicks the insurers out of the profit-from-my-life-threatening-condition rentier existence and resigns them to offering supplemental insurance for those that want cushier than the universal coverage. We need federal enforcement of anti-trust, so that multinationals lose their aura of quasi sovereign status and can’t get “too big to fail”. (if anything is a short catchy phrase for what anti-trust should aid at, too big to fail seems to capture it.) We need to reinvigorate unions, so that ordinary Americans have a chance to grab a slice of the American pie.
Instead, states are putting on the austerity brakes. By keeping state taxes too low–cutting business taxes, cutting taxes on investment income and otherwise generally failing to adopt a steeply progressive tax system that could ensure they have adequate funding for important programs, states are sacrificing their futures. For example, states are forcing students to pay way too much for state universities (while they coddle private universities that should be making it on their own). Tuition has gone up by about the same amount that state support has gone down. States are firing state workers, or making them absorb a pay cut of 10-20% (in the name of making them pay more into their retirement plans while the states pay less, or making them pick up all of the incremental costs of health care coverage). The trickle down effect of those cuts is a slashing of small business in localities throughout the states. States are taking away public bargaining rights–moving us back to a neofeudalism where workers like peasants have to take whatever scraps the big boss throws their way, from cutting wages in half to tossing out the pension plan that the boss never fulfilled his promises towards. They are using a divide and conquer strategy–tell private workers [whose unions were long ago weakened by Taft-Hartley’s provisions and by concerted employer action to impede union formation and lobby for provisions that make it harder to unionize (such as the fight against the ‘card check’ rule)] that it isn’t fair for public workers to still be able to have unions and have good wages and benefits. Bring ’em all down to the dog eat dog world where the 1% will lord it over and the 99% can grovel.
There’s a good letter to the editor in the New York Times Friday 2/10/12, at A22, on the Cost of Public Colleges: easing the burden, by Mark Steinberg, history professor at the University of ILlinois in Champaign-Urbana (my stomping ground before my move to Detroit). He hits it right on.

“Punishing” schools that have partly filled the gap [left by the erosion of state support] with higher tuition may make education cheaper but will surely damage that education. College teachers across the country have seen many of these ‘more cost-effective ways to deliver education’: bigger classes taught by overworked and lower-paid adjuncts, more online courses, freezing the pay of faculty and staff, and other measures that control costs at the expense of quality and access.

Steinberg proposes two solutions to ensure that more money is spend on the “primary mission–serving the public good with new knowledge and educating citizens regardless of income”. The solution is to help states restore higher education funding, and to end the “jack and the beanstalk” growth of administrative positions.
Hear, Hear. Michigan, for one, needs to move to a progressive income tax and use the increased revenues to re-fund its state universities, which have moved from about 60% state funding to about 30% state funding in the last few decades.
If we don’t, we will see the proliferation of preferential treatment of the elite 1%, and the mashing down of most of the ordinary folk to low services. See Peter Funt, How Government Coddles the 1%, Wall St. Journal, Feb. 11-12, 2012, at A22 (noting that purchased privileges like California’s creation of “high roller lanes” for the wealthy who pay a fee and speedy airport screening for the rich are “dangerous precedents” for a country that has long considered the community of sharers of the public good to be undifferentiated by class. What’s next, he asks–public libraries where goold card holders get first crack at new titles; public parks, where the elite get the cleanest, greenest spaces; public beaches, where premium members get the best spots; public memorials, where the elite get the red carpet? As we move in that direction, we not only define an upper class but we place everyone else in a lower caste.

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Even critics of the safety net…

This article in the New York Times (Even critics of the Safety Net) presents a gentle desription of some voter feelings about the political and economic ‘issues’ of this economy and election. I have a lot of different feelings about the description of people interviewed. The current media surrounding the election campaigning does not allow for voter foibles and confusions, and appears to demand stark responses so far. I do wish the author could have pressed for more thinking on the part of the people interviewed to illustrate how such ambivalence plays out in real life.

Update:  I will have a post taking a look at the author’s writing, which is actually a piece of propaganda if you follow the statements of ‘fact’ and lack of easily added context for the figures and stated problems.  Hence the author chose (or the editors, perhaps) instead  to promote the confusions without educating readers or those interviewed.

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Does economic blogging matter?? Part one

Angry Bear was started by its namesake in the latter part of 2003, and continued publishing through the editorial efforts of Mike Kimel and Dan Crawford over the last six years (see About page). 
Mark Thoma at Economist View approaches the role of econblogs through pointing to the disconnect between academics and public use of the language of economics in an article published by Academia and the Public Sphere titled New Forms of Communication and the Public Mission of Economics: Overcoming the Great Disconnect:

Fortunately, however, the “Great Disconnect”[3] with the non-academic community is being reversed with the development of new information technology. Economics blogs in particular have played a key role in turning things around.

Matt Stoller at Naked Capitalism suggests:

But something odd happened in 2008, during and in the wake of the crisis. Capitol Hill staffers and members of both parties began looking for expertise on how finance actually worked. And they began reading financial blogs. Lobbyists just didn’t or couldn’t help them understand how to deal with the massive systemic failures; they knew in some sense that the information they were getting was rigged. They just didn’t know how. The financial blogs began to tell them.

Over the course of the next few years, the financial blogs became a new alternative system which delivered one of the most valuable commodities that previously had been monopolized by financial lobbyists and institutions like the Fed – credible information. That’s why there was an actual debate during Dodd-Frank over reining in the size of banking institutions, and auditing the Fed. Instead of second order industry shills distributing information they have been fed by the PR departments of big banks, communities of end-users of finance began to talk directly to lawmakers through mediated forums on the internet.

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