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

Republicans’ “Market-Oriented” Health Care Reforms Won’t Work, Part 2

Last time we examined a common conservative “solution” to the country’s health care problems, allowing insurance companies to sell policies across state lines. What we found, though, is that this would lead to a race to the bottom in state regulation of insurance products, and that there is no reason to think that further marketization of healthcare in the U.S. will lower costs.

Today, we turn our attention to tort reform. It figured prominently in Karl Rove‘s Wall Street Journal article last week (paywalled). This has been a conservative theme for so long that most states have already done it. In fact, since 1986, 39 states have limited noneconmic damages, punitive damages, or both, making it hard to see how further tort reform can yield much in terms of gains that haven’t already been achieved. The current conservative battle cry is for federal tort reform, in other words forcing the states to reduce protection against medical malpractice whether they want to or not.

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Looking at the Consumption rate of Capital Income

Theoretically, capital income, especially in the form of retained earnings by corporations and some capital gains would be used for saving and investment in the means of production, while labor income is used for consumption of finished goods and services from production. However, a portion of capital income is used for consumption, when the incentives and extra liquidity are there.

What is the percentage of capital income that is used for consumption of finished goods and services? And is it helpful to know?

Here is the graph I put together showing the changes in the consumption rate of capital income since 1953…

capital C

Link to Graph #1.

The consumption rate of capital income reached 40% in the 1960s and then fell to almost 0% during the 1980 recession. Why the dramatic drop? And if we look to 2013, we see that the rate is making a comeback.

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Rep. Bill Johnson Knows What’s Wrong With the Economy

Most of our unemployment problem stems from overregulation, over-taxation and the Obama economy.

— Rep. Bill Johnson (R-OH), Monday

Which is why we should deregulate the financial-services industry and reduce income taxes to resemble the good ole days of the George W. Bush administration. Let’s restore the economy to its glory days: say, 2008-09.  And I swoon when I think of how swimmingly the economy of Johnson’s state, Ohio, would be if only that socialist Obama hadn’t had the federal government use tax money to save GM and Chrysler.

Why, if Obama keeps going the way he has been with all that tax-and-regulation-and-pro-union stuff, he’ll drag the economy back to the days of the LBJ administration! What were tax rates then?  And that Glass-Steagall law! How did U.S. capitalism ever survive the ’60s?!

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Walras and The Carpenter

Scott Sumner nods with approbation toward this Ychuan Wang post at Noahpinion. For which hat tip I must thank him because Wang so clearly explicates what he calls the “canonical” understanding, and illustrates so perfectly the wackiness and incoherence of of the Walrasian view:

Prices don’t always adjust instantly, so we can have excess supplies and excess demands. However, economists do have a way to constrain what this non-clearing state looks like. In particular, according to Walras’ law, assuming everybody spends all of their wealth, if there are excess supplies (i.e. too much produced) in some markets, then they must add up to excess demands (i.e. too little produced) in other markets. In other words, even if supply does not equal demand in each market, supplies must add up to demands across markets.

The requirement that everybody spends their endowment is crucial. It means that Walras’ law doesn’t apply just to the market for apples. Not everybody spends all their wealth on apples. Instead, some people may put their wealth into money. But once we include the money market, we do have the condition that everybody spends their endowment, and therefore Walras’ law does apply to the entire macroeconomy of apples and money.

In case you missed it, the legerdemain here hinges on the word “spend,” and on the hidden assumption that “spending” on stock or bond purchases is equivalent to spending on carpenters or clams. (I sure wish “oyster” started with a C. But the clam/dollar thing is a nice play…)

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“Incentives matter” Says Exactly Nothing

Unlearning Econ:

The story goes like this: an Israeli day care centre found that parents were picking up their children too late, so they introduced a small charge of $3 to try and disincentivise lateness. However, instead of discouraging this behaviour, the payment served to legitimise it and buy the parents piece of mind. The result was that lateness actually increased. Bizarrely, the Freakonomics duo decided that this story is consistent with economist’s way of thinking, and used it as an introduction to the idea that “incentives matter”. They argue that people actually face three different types of incentives: economic, moral and social. The idea is that the charges “substituted an economic incentive for a moral incentive (the guilt)”, with the implication that the daycare centre simply didn’t get the amount right. However, if this were true, treating guilt would be as simple as paying somebody that you had wronged.

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Links Aug. 8. 2013

Has the Shale Bubble Already Burst? (Igor Alexeev, Naked Capitalism cross posted from Oil Price) “The average depletion rate of wells in the Bakken Formation (the largest tight oil play in the US) is reported to be 69 percent in the first year and 94 percent over the first five years (37 percent and 50 percent in the Barnett Formation).”

The Foolish Push to Scrap Fannie Mae and Freddie Mac (Jason Gold, U.S. News & World Report)   Prof. Barkley Rosser offered a similiar idea Why Are We Rushing To Get Rid Of Fannie Mae and Freddie Mac? posted at Angry Bear via Econospeak.

What Steve Keen is maybe trying to say (Nick Rowe, Worthwhile Canadian Initiative)

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Angry Bear among top Influential Economics Blogs…Onalytical Indexes

Thank you contributors and readers, it’s true.

We are listed at 34th this time, even missing Robert Waldmann and Kenneth Thomas mentions in Paul Krugman’s  New York Times columns this month as rankings were determined in July.

Onalytical Indexes publishes their  Top 200 Influential Economics Blogs – Aug 2013
by Andreea Moldovan

It’s been several months since we published our latest ranking of influential economic blogs. Below is an updated list of the top 200 economic blogs, ordered by their Onalytica Influence index.


We have recently added some very well-known and influential blogs such as Economix,FT Alphaville and Vox, causing most blogs to go down in ranking.

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Ryan Avent Agrees: Demand Inflation Now!

DIN. We should print up lapel buttons.

I suggested this campaign some time ago:

This would:

• Transfer relative purchasing power (hence power) from holders of financial assets to holders of real assets — from Wall Street to Main Street — and from (relatively few) creditors to (many more) debtors.

• Spur both consumption spending and investment spending (on real assets) by individuals and businesses — driving our economy toward its full capacity and employment potential.

• Deflate the country’s massive overhang of under-collateralized business, personal, and government debt. (Debt that is not backed up by sufficient quantities of real assets.)

If managed properly, it could even result in wages rising as fast as prices (or even — pas possible! — faster) without the dangers of the bogeyman “wage-price” spiral (of which there is zero sign at this time).

Read Ryan here:

Business cycles: Demand more inflation | The Economist.

Cross-posted at Asymptosis.

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Federal Reserve Bank of San Francisco agrees with Spencer England

There was a flurry of articles trumpeting an effect of Obamacare on the rise in part time employment. Quite a stretch for some with ‘data’. Here the FRBSF weighs in:

What’s Behind the Increase in Part-Time Work?   
Rob Valletta and Leila Bengali
August 26, 2013

Part-time work spiked during the recent recession and has stayed stubbornly high, raising concerns that elevated part-time employment represents a “new normal” in the labor market. However, recent movements and current levels of part-time work are largely within historical norms, despite increases for selected demographic groups, such as prime-age workers with a high-school degree or less. In that respect, the continued high incidence of part-time work likely reflects a slow labor market recovery and does not portend permanent changes in the proportion of part-time jobs.

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