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

Labor share is chopped liver to Mr. Krugman

When someone is not being noticed, there’s the saying, “What am I? Chopped liver?”

There is something that Paul Krugman is simply not noticing.

First, let me quote Mr. Krugman from his recent post, The Depressed Economy is all about Austerity.

“I don’t want to pretend to spurious precision here. Instead, I just want to make the point that given what we know and have learned about macro these past five years — and given the modest recovery that has taken place — we’re now at a point where, to repeat, to a first approximation the depressed state of the economy is entirely due to destructive fiscal policy.”

It’s at this point that labor share of national income which has dropped 5% since the crisis says to Mr. Krugman, “What am I? Chopped liver?”

Mr. Krugman by using the word “entirely” simply has no appreciation, no conceptual importance, no apparent model, to say that labor’s fallen share of output income is depressing the economy. … Wow

To me this is another character-defining moment of Mr. Krugman, who once said that living wages were not an economic issue, but a moral issue. He now seems to be saying that low labor share is a moral issue, not an economic one. Again Wow…

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Health Care Thoughts: Obamacare Updates

by Tom aka Rusty Rustbelt

Health Care Thoughts: Obamacare Updates

Latest news on Obamacare:

Narrow Networks – Some customers of the new insurance exchanges may be surprised at the “narrow network” included in their insurance coverage.

Narrow networks have a limited list of approved provider and will likely make out-of-network treatment difficult if not impossible.

This is just now hitting the news, a few days before the exchanges begin operations.

Private Exchanges – The concept of health insurance exchanges is being adopted by employers looking for cheaper coverage and fewer hassles, putting employees into private exchanges managed by various consultants and facilitators.

It is too early to judge the scope of this innovation, but it could become a very large factor in employer provided health insurance.

(Dan here…My own thoughts in comments)


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Popular Science magazine shuts off comment section

I remember how much time it took to evolve a notion of the range of ‘appropriate’ comments and how difficult it was, excluding the easy ones to eliminate that were simply rude and crude.  There were lots of considerations for Angry Bear that are different than the magazine faced I am sure, but the struggle to maintain an open comment section was intense and took a lot of time.  I can feel a post is coming on the issue, but for now will take my cue from comments:

Signs of the time…lifted from the website of Popular Science.

Why We’re Shutting Off Our Comments

Comments can be bad for science. That’s why, here at, we’re shutting them off.

It wasn’t a decision we made lightly. As the news arm of a 141-year-old science and technology magazine, we are as committed to fostering lively, intellectual debate as we are to spreading the word of science far and wide. The problem is when trolls and spambots overwhelm the former,diminishing our ability to do the latter.

That is not to suggest that we are the only website in the world that attracts vexing commenters.Far from it. Nor is it to suggest that all, or even close to all, of our commenters are shrill, boorish specimens of the lower internet phyla. We have many delightful, thought-provoking commenters.

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TPP, Fast track, secret to you

Sorry for such thin postings lately but life happens. Hat tip to stormy for this reminder of a trade agreement not making the news. Use TPP in search to see other postings from Kenneth Thomas and Dan Becker:

Via Truthout comes this item

So far, the TPP has been drafted with an unprecedented degree of secrecy. While information has been kept from the public more than 600 corporate advisers have access to the treaty’s text – including companies such as Halliburton, Monsanto, Walmart, and Chevron. The Obama administration has kept the TPP classified, making it the first-ever classification of a trade agreement. In addition to denying public access to its text, the president has urged Congress to use Fast Track to pass the treaty. Fast Track would limit congressional consideration of the text to a quick up or down vote and give President Obama the power to sign and negotiate the treaty. This turns the Constitution on its head as the Commerce Clause authorizes Congress to “regulate commerce among nations” not the president.”

See here and here

Succinctly, Stormy writes:

Of course, no major paper covered the protest…we know who pays the bills. Obama will fast track the secret agreement through Congress—who of course will not pay much attention, watching their wallets instead.

If suspicions are correct, then multinationals will control more of labor and environmental regulations than we really want—in short, well-known impediments to corporate profit.

I am beginning to learn that what IS NOT in the news is actually more important than what IS the news.

Doug aka stormy

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Maggie Mahar Healthbeat Blog: Reverse “ Sticker Shock”— Why are Insurance Rates in the State Marketplaces Lower Than Expected? — Part I

Even Forbes’ columnist Avik Roy is recanting. Earlier this month he acknowledged that under Obamacare, many Americans who buy their own coverage in 2014 will find that insurance is significantly more affordable than it was in the past: “Three states will see meaningful declines in rates: Colorado (34 percent), Ohio (30 percent), and New York (27 percent).”

Colorado, Ohio and New York are not unique. As states announce the prices that carriers will be charging in the online marketplaces (or “Exchanges”) where Americans who don’t have health benefits rate at work will be purchasing their own coverage, jaws are dropping. Rates are coming down, not only for those individuals, but for some small business owners who will be buying insurance for their employees in separate SHOP (Small Business Health Options Program) Exchanges.

What may be most surprising is that premiums will be lower, not only in liberal Blue states but in some Red states that are opposed to Obamacare.

What is making health insurance more affordable?

First, the majority of individuals shopping in the Exchanges will be eligible for government subsidies that will go a long way toward covering premiums. In the past I have written about how these tax credits will help young adults (18-34). But older Americans also will benefit. Fully 30% of those who receive tax credits will be 35-54, and 12.5% will be 55 or older. This is important because in the Exchanges, insurers in every state except New York and Vermont will be allowed to charge a 60-year-old three times as much as they would charge a 20-year-old for exactly the same policy. Without subsidies many would find insurance totally unaffordable.

The second reason premiums are significantly lower than expected is that as I have explained on in the state marketplaces insurers are forced to compete on price. All policies sold in the Exchanges must cover the same essential benefits, and follow other rules that will make the plans look very much alike. The only way for a carrier to distinguish himself from the crowd will be to charge less—or have a better network of providers. But the younger customers that carriers covet care far more about price than about the network.

Third, in many cases, state regulators have been clamping down. In Portland Oregon, for example, regulators forced insurers to cut their proposed rates by an average of nearly 10%. Three of the 12 insurance companies in that market had to lower their rates by more than 20% f

Finally, rates in many Exchanges are looking surprisingly affordable because many insurers are narrowing their networks to a group of hospitals and doctors who will offer higher-quality care for less. Meanwhile the fear-mongers argue that this means patients won’t receive the care they need.

Indeed, the New York Times just published an article suggesting that patients with complicated medical problems may have a hard time finding providers within an insurer’s network who can treat their problems.

What the Times neglected to mention is that the Obama administration had anticipated the possibility that a network could be too narrow and has already addressed the issue. As Modern reports, “last year, the administration issued a rule” that insurers “must maintain a network of a sufficient number and type of providers … to assure that all services will be available without unreasonable delay.” The rule also requires that “essential community providers” be included in all plans.

This is an important fact. It is not clear why the Times ignored it.

Modern goes on to quote Dr. Jeff Rideout, senior medical adviser for the Covered California state exchange, stressing that “all plans included in the exchange have to get state and federal regulatory approval for network adequacy.”

But will the in-network providers be as good as those who balk at the notion of charging less than top dollar? Study after study shows that there is little correlation between higher prices and better care. In fact, lower costs and higher quality go hand in hand: when more efficient hospitals co-ordinate care there are fewer “medical misadventures,” hospital stays are shorter; and both patient and doctor satisfaction is higher.

In the 1990s, HMOs that asked that t patients stay “in network” fell out of favor. But today, when Consumer Reports publishes NCQA ratings on quality of care as well as consumer satisfaction, it turns that that HMOs that rely on “networks” outrank other insurers. Networks that coordinate care are the future of medicine.

Ohio—In September the Truth Finally Emerged

Ohio serves a striking case study of “reverse sticker shock.”

Before next year’s rates for individuals buying their own insurance were announced, many Red state officials had warned that prices would spiral. In June, for example, Ohio Lt. Gov. Mary Taylor, a Republican who heads the state’s insurance department, took fear-mongering to a new level by announcing that in 2014, the average cost of coverage would rise by an estimated 88 percent. l

Two months later, when Taylor’s department disclosed the actual premiums that insurers will be charging in Ohio’s marketplace, reality forced her to amend her estimate. Nevertheless, she still insisted that in 2014, premiums for individuals will be a whopping 41 percent higher than they were this year. Republican House Speaker John Boehner then picked up his megaphone, calling her announcement “irrefutable evidence” that Obamacare will hurt the economy as it drives up costs.

The Cleveland Plain Dealer wasn’t buying any of this. Reporting on Taylor’s revised numbers, it immediately observed that her statement “masks the fact that for many individuals, premiums and out-of-pocket medical expenses will go down” because the vast majority of Americans buying their own insurance in the state exchanges “will be eligible for income-based federal subsidies to reduce or eliminate their costs.” (It would be difficult to accuse the Plain Dealer of liberal bias. In 2012, the paper endorsed Mitt Romney for president.)

The paper then pointed to a second flaw in Taylor’s reasoning. When she compared the average cost of insurance to 2013 to the average cost of 2014 policies, she included bare-bones plans sold in 2013 that “require deductibles of $10,000 or more and offer only catastrophic coverage.”

This distorts the comparison between 2013 and 2014 prices in two ways:

1) All of the plans sold in the Exchanges in 2014 will offer far better protection and much lower deductibles than the bargain basement plans Taylor used in her comparison. She was comparing apples to rotten apples.

2) More importantly, as the Plain Dealer went on to explain, even in 2013 “relatively few people bought these plans (because of super-high deductibles and crummy coverage).” In other words, in order to draw a fair comparison between “average” prices in 2013 and 2014, one needs to look at the plans that most people purchase.

By September Forbes columnist Avik Roy, a senior fellow at the conservative-leaning Manhattan Institute for Policy Research agreed: rates in Ohio would plunge.

In June, Roy had trumpeted Taylor’s projections that healthcare reform would lift rates in Ohio’s state marketplaces by 88%. But as states announced the premiums they had approved, Roy and his team re-crunched the numbers, and acknowledged: “rates on average will go down for Ohioans” by “30 percent. . . even before even considering the effect of subsidies.” /

Let me be clear: Roy continues to claim that most Americans buying their own coverage will see their premiums rise in 2014. On that point, he still is wrong: in his state-by-state analysis of rates, he doesn’t include the impact of the subsidies.

But a policy’s “sticker price” won’t matter to someone purchasing insurance in the state marketplaces. What will matter is what he actually has to lay out, after applying his tax credit. That will determine whether he believes that the “Patient Protection and Affordable Care Act” is actually offering affordable insurance.

(Keep in mind that most people shopping for insurance in the Exchanges live in low-income and median-income households– and thus are eligible for subsidies. More affluent Americans are far more likely to work for employers who offer good health benefits– or to have coverage through a spouse or a parent. The Exchanges will not be open to them because an employer already subsidizes their insurance.)

Still, I greatly respect Roy’s honesty regarding Ohio. In these polarized times, retractions have become rare, even in highly-respected publications. A hat-tip to Roy and to Forbes.

Maggie Mahar Healthbeat Blog

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Nauseating Health Care Idiocy from Forbes

A non-blogging friend points me to this new article at Forbes by Chris Conover purporting to show that the “typical family of 4” will see its health care spending rise by $7450. He quotes the Center for Medicare and Medicaid Services (CMS), saying “in its first ten years, Obamacare will boost health spending by ‘roughly $621 billion’ [that’s the CMS quote]  above the amounts Americans would have spent without this misguided law.” How stupid is this? Let us count the ways.

First of all, this is not $7450 per year, but over the entire 10-year (or more likely 9-year; he usually refers to 2014-22) period. So he’s hyping shock value that isn’t there. As he explains, he divides the $621 billion by total population over the period to give a per capita cost, which he then multiplies by 4 to get the cost to his “typical family of 4.” So what we’re actually looking at, before we start tearing up his calculation, is ($7450/9)/4 = $207 per capita higher spending per year on average. Recall that in 2011 the United States spent $8174.90 per person on health care (see link on how to navigate to the ultimate source for this data,

Second, Conover doesn’t understand present value. He writes, “Of course, all these figures are in nominal dollars. In terms of today’s purchasing power, this annual amount will rise steadily.” Of course, it is just the opposite. A dollar in 2022 is worth less than a dollar today. In 2013 dollars, the amount is less than $207 per person per year (how much less depends on what you consider an appropriate discount rate). How does an editor not catch this? I have a screen shot to memorialize the error after it eventually gets fixed.

Third, Think Progress’s Igor Volsky is completely right when he quotes Paul van der Water of the Center on Budget and Policy Priorities that none of this will apply to the “typical American family” because that family gets its insurance at work. More money will obviously be spent over time, but it won’t be spent at the center of the health insurance distribution, if you want to look at it that way. But Conover can’t see this point. Instead, he points the finger at President Obama for promising that the ACA would reduce premiums for the typical family by $2500 per year. Not only do two wrongs not make a right, but…

Point four is that what he says is impossible just isn’t: “It’s simply not possible for national health spending to rise by $621 billion and for the “typical” family to expect a $2500 (per year!!!!) premium reduction.” I don’t know if it will happen, but it certainly isn’t impossible. Conover is overlooking the fact that the increase in health spending is being funded in ways that don’t come out of individual health care spending. High-income taxpayers ($200,000 single, $250,000 filing jointly) are paying 0.9% points more in Medicare tax and an extra 3.8% on investment income. According to Robert Pear of the New York Times, “The new taxes on wages and investment income are expected to raise $318 billion over 10 years, or about half of all the new revenue collected under the health care law.” The medical device tax will raise $29 billion over 10 years, over $100 billion will come from insurance companies, $34 billion from drug companies, and $150 billion from the “Cadillac” tax, according to the Obama administration. (We can debate the wisdom of this tax, but it doesn’t fall on the “typical” family.) We’re already at $631 billion over 10 years. If we increased these taxes more, yes, we could use the money to fund premium reductions, most plausibly by increasing the income levels eligible for subsidies.

Then, there’s the little matter of the newly insured. By 2022, according to the CMS report Conover cites, 30 million more people will have insurance than would be the case without Obamacare. While many of those people will be receiving subsidies, a lot of them will be paying something for their insurance, adding even further to the sources of income that don’t come out of what the “typical family” will pay.

Finally, the new 30 million people will be covered very efficiently. $621 billion divided by 9 years is $69 billion per year, divided by 30 million people is $2300 per person per year. While that figure is too low because we won’t be insuring all 30 million immediately, remember that 2011 U.S. health spending per capita was $8174.90. Any way you look at it, the newly insured will be costing far less per person than those currently in the insurance system.

There you have it. Forbes‘ most-read story of the day (with over 26,000 Facebook shares and 3400 tweets as I write this) is simply false. Between all the new taxes and the premiums from the newly insured, you can cover the total increase in health care spending. The typical, already insured family isn’t going to see increases due to the rise in overall health care spending. You add 30 million new insured at a far lower cost than what we currently spend per person. And the editors didn’t catch a blatant error on present value.

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What’s with Taper Talk and Assets Prices

I have gone a bit quiet on the QE front. Obviously, this is because I have been surprised and my pet theory has taken a beating. The theory was that QE amounts to basically nothing much. The dramatic effects on asset prices due to Abe/Kuroda announcements in Japan were seriousy damaging. But now not all is quiet on the Western QE front. There were huge asset price responses to loose talk about tapering QE3 (down to just the third most hugely expansionary US monetary effort after QE1 and QE3 so far) and then recently a huge response to the announced decision to not taper. I am puzzled, but I have a story.

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William Dudley on the economic outlook… An “Effective” response

William Dudley is the President and CEO of the Federal Reserve Bank of New York. He gave a speech about the economic outlook. The speech is standard talk about economic improvement that is not good enough yet. He states that demand is a constraint on the economy.

“Turning first to consumer spending, such spending has remained fairly subdued outside of interest rate-sensitive consumer durables.  In July, for example, real personal consumption expenditures were flat, and it is unlikely that third quarter consumption growth will be much above a 2 percent annual rate.

“Moreover, the drivers of consumer spending do not look particularly supportive.  In particular, real disposable income growth has grown at less than a 1 percent annual pace since March.  Furthermore, the recent data do not yet clearly indicate a firming in the income growth rate, or the two important components of labor income growth—hours and compensation.

“The conundrum for consumers is a simple one:  if consumer spending growth is to exceed 2 percent annualized on a sustained basis at a time when real disposable income growth is below 2 percent then this would require the household saving rate to decline persistently.  But there is little reason to expect such a decline given that the current saving rate is at a level consistent with current level of household wealth relative to income.

“We have a chicken-egg problem.  If the saving rate remains stable, then stronger consumption growth will require a pickup in income growth. But for income to rise, demand must increase.  This suggests that there may need to be an impetus to growth from other sectors of the economy to generate a boost in consumer spending growth.”

Income… Income?… What is income?…  In a black and white view, income can be paid to the rich (1%) or to the poor (99%). If increased demand comes from the rich spending more, the resulting income will go to the rich as wages are not increasing. If increased demand comes from the poor spending more, once again the income produced will go to the rich.

Keynes thought about this too… from chapter 21 of the General Theory

“…the multiplier will be influenced by the way in which the new income resulting from the increased effective demand is distributed between different classes of consumers.” (source)

But we have to ask, if the poor are spending more, where did they get that money? As Mr. Dudley states, disposable income is rising less than 1% currently. Either savings rates go down or consumer debt rises. What does he say about consumer debt?

“Reflecting this improvement, credit standards are beginning to ease, which should support consumer spending on durable goods.”

Warning!!! … While incomes are not firming, credit is beginning to ease. This spells trouble. Do we really want the financial sector to rescue demand with credit?

But the savings rate is not expected to decline any further. Hmmm…. I guess there should be no wonder why inflation is so slow and stable.

Mr. Dudley, just say it… Wages have to rise. The poor (99%) must be the source of the increased demand.

What does Mr. Dudley say about inflation?

“On the inflation side of the ledger, inflation remains below the Federal Reserve’s 2 percent  longer-run objective for the personal consumption expenditure (PCE) deflator.  The year-over-year change in the total PCE deflator was 1.4 percent in July. This has created some concern that inflation is “too low,” raising real interest rates and making monetary policy less accommodative.  I acknowledge this concern, but I believe it will abate as inflation moves gradually back up towards a 2 percent annualized rate over the next few years.

“Putting these factors together along with my forecast of a gradual pickup in real economic activity, my outlook is for inflation to drift back toward our 2 percent objective over the medium term.  However, much like the case of the real growth outlook, there is significant uncertainty around this forecast.”

Does he really know what he said here? It will take a few years! for inflation to get back to 2% and even that has uncertainty…

Economics is in a dismal state.

I am fortunate to have an answer. I am from the West, but in my worst New York accent, I say, “Ey, Mr. Dudley, I got two words fors ya.” … Effective Demand.

Everything he is talking about is explained by Effective Demand, which is lower than previous years and decades due to labor receiving a substantially smaller slice of the national income pie. Low Effective demand explains low savings rates, low inflation, low demand, low income, high unemployment, low wages, mild improvement in the labor market, ineffective monetary policy, and mild but unsatisfactory economic improvement.

And to top it all off, Effective demand points to an economic slowdown in real output within the next two years.

If we had had a knowledge of effective demand in the past, we would have been able to approximate the timing of every recession since the 1960’s, except for Volcker’s. We would have been able to describe the effects on real output and inflation. And if we were to get some smart economists working in effective demand, we might more clearly see the effects on business investment and more.

Look… Here is the bottom line. Effective demand has moved to a new low normal in the past decade. Whether you think the overall economy has or not, effective demand has. According to the track record of effective demand, the potential of the economy will be cut short below the expectations of economists who are looking at past data. How can this happen? The one piece of data that has never substantially changed until now, and which economists are subsequently not prepared to understand… is effective demand.

Effective demand is going to make a sneak attack on the economy.

One last word from Keynes who never nailed down an equation for effective demand, but had insights into how it would work.

“For the schedule of liquidity-preference itself depends on how much of the new money is absorbed into the income and industrial circulations, which depends in turn on how much effective demand increases and how the increase is divided between the rise of prices, the rise of wages, and the volume of output and employment.”

Keynes’ insight here is reflected in the equation for effective demand which speaks to wages, output and employment.

Effective demand = Real GDP * effective labor share rate/(capital utilization rate * labor utilization rate)

The question is… How will the Fed get new money to the right class of consumer in order to increase effective demand at the right time to increase output and employment and maintain price stability?

Answer: In order to not fall prey to the fallacy of composition, wages must be raised across the board, and if possible, across many countries.

Capital has too much money and Labor does not have enough… Full stop.


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Do investors really not get it regarding US paying it’s debt?

A question has been nagging me. First, does the rest of the world not get that the republicans are playing a game with the US’ bank account? Does anyone really believe that the US won’t pay as in the renter just skipped out the back door? Or maybe I should say; as in the capital venture company just loaded up the latest purchase with debt, pocketed that money and filed bankruptcy?

Really, the US won’t pay it’s bills? Oh no, the nation is going Detroit?

It’s a game folks. Don’t play it. If you don’t play it then the republicans have no threat because the financial world is not really threatened.

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