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Graunt Work

Lifted from open thread Aug. 31, 2014 by Sandwichman.

My latest on the lump of labor fallacy takes the story back to the 17th century and John Graunt’s Observations on the Bills of Mortality. Graunt speculated about a certain PROPORTION of work to be done. The fallacy claim alleges the assumption of a fixed QUANTITY of work to be done. (One would hope that mathematically-inclined folks would be able to tell the difference between a proportion and a quantity, or between a ratio and an integer. Apparently, though, this subtle mathematical distinction has eluded the Harvard / M.I.T. / L.S.E. adepts.)

You wrote, “It [the strategy of hours reduction] only requires that the number of hours of labor demanded be constrained.”

I agree and will elaborate (in a future post at EconoSpeak) on the proportions that govern those constraints on the demand for labor, as I had indicated I would do in my recent post there, “Graunt Work”.

Sandwichman at Econospeak  (re-posted with permission)

Graunt Work

“To understand the idea of inherent quantitative regularity which informs Graunt’s text, and how he was able to devise a method which demonstrates this regularity in vital phenomena, it has been necessary to consider his synthesis of four period concepts: the method of observation prescribed by Bacon’s natural history; the method of keeping accompts, with its several proportional checks and informal attitude to population totals; a mercantile system of natural and intrinsic balances, embracing people and trade; and a general model of society as a set of correspondences uniting man, God and nature.” — Philip Kreager, “New Light on Graunt,” Population Studies 42, 1988, pp. 129-140.

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A Closer Look at the Pay-Me-to-Not-Recline Argument

Peter Dorman at Econospeak describes a common example of thought experiments on markets and externalities, and concludes with “More complex considerations that take into account dynamics, interaction effects and the like never intrude.  What you end up with is an ideological truncation of economics, and, as the Great Airplane Debate illustrates, it is largely ideology that frames public discourse.” (Re-posted with permission).

Sometimes I mention to acquaintances that much of what they read that is called economics is NOT ‘economics’, even in general terms, largely because the second or third step in analysis is not taken.

Coase at Cruising Altitude: A Closer Look at the Pay-Me-to-Not-Recline Argument

The recent dust-up over the rights of recliners versus the people behind them who get jammed on  crowded airplanes tells us a lot about Coase’s analysis of externalities and the perils of having a simplistic Free Market Roolz understanding of economics.

First, to get a flavor of the two sides, read Josh Barro, followed by Damon Darlin, in theNew York Times.  The question is whether passenger A in the row in front has the right to recline into the kneespace of passenger B in the row behind.  Barro invokes Coase: the solution is to have a market.  Clearly, the would-be recliner has the property rights in this matter, since the seat is built to allow reclining and flight attendants will enforce this right in the event of a dispute.  So turn it into a market, says Barro.  If you don’t want me to recline, pay me.  If you offer me enough money, I’ll take it and you can keep your few precious inches.  Darlin doesn’t question this invocation of Coase, but he says that the technology gives an unfair advantage to the recliner.  The playing (sitting?) field is leveled, according to him, if passenger B uses a Knee Defender.

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Tennessee Decides to Expand Medicaid

In my own state of Michigan, there was a battle in the Republican controlled state legislature to expand Medicaid for the 600,000 uninsured citizens. It did pass with some legislators such as Michigan State Senator Joseph Hune complaining loudly about how its passage made him “sick to his stomach.” Even with the passage, the state legislature delayed its implementation from January 1st to April 1 2014 costing the state $millions in aid. Republican Governor Rick Snyder supported the passage of the Medicaid Expansion after commissioning a study by the State Senate Fiscal Agency investigating his proposal of banking some of the savings to be used after the 100% federal funding ceased. Based upon medical cost inflation rate, case load, HICA Caps, etc.; the state would not have to dip into its coffers until 2022 considering worst case to potentially 2034 under the best case scenario.

It has been said of many of the holdout states in denying the expansion of Medicaid, they pass up quite a bit of $federal to expand Medicaid, lose $federal reimbursing hospital care for the uninsured, and would eventually come to the table and accept the expansion. August 28, The Tennessean quoted the Gov. Bill Haslam him “I think we’ll probably go to them sometime this fall with a plan … that we think makes sense for Tennessee.”

Not only is the expansion important for the uninsured, it is important for hospitals which were previously reimbursed for care to the uninsured through other federal programs. These programs would be discontinued under the Medicaid Expansion whether the state went forward with it or not. Many of these hospitals would be faced with bankruptcy or denying care to the uninsured.

Tennessee Justice Executive Director: “It’s urgent that the governor submit a serious plan to accept federal funds to expand health coverage for Tennesseans. The Consequences of delay are devastating for both the healthcare infrastructure we all rely upon as well as Tennesseans.”

The same as the delay in Michigan, the delay in Tennessee also costs the state aid at the rate of $2.7 million/day. Gotta love those Repubs.

Ht Tip: Crooks and Liars

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Blanchard & Krugman are trying to understand Effective Demand

Do these books include Keynes’ precious term, “Effective Demand”? ¯\_(ツ)_/¯

I watch as grand economists explain the current economy… in particular, Olivier Blanchard and Paul Krugman. They miss the eventual fight of labor to increase their share…

Olivier Blanchard wrote an article, Where danger Lurks. He mentions the Dark Corners where the economy can function badly. He centers his analysis around the financial sector as it is connected to nominal interest rates, inflation expectations and macroprudential policy. He cautions that we need to “Stay away from Dark Corners”. Sounds so mysterious. So he makes a call for more research to understand…

“Turning from policy to research, the message should be to let a hundred flowers bloom. Now that we are more aware of nonlinearities and the dangers they pose, we should explore them further theoretically and empirically—and in all sorts of models. This is happening already, and to judge from the flow of working papers since the beginning of the crisis, it is happening on a large scale.”

What are the Dark Corners that undermine the financial system? What causes governments to lose money? What causes firms to hold back on investment which creates money? What causes low inflation? What causes private and public debts to build up? What causes output and productivity to stagnate?

The answer is a plain and simple… Effective Demand. This is a term so rarely used in economic discourse. It is not understood. For me, effective demand sets a “definable” limit upon the utilization of labor and capital. So it follows that lower effective demand leads to lower investment, lower output, lower productivity, lower taxes and less ability to pay debts.

Effective demand is based upon labor’s share of a national income. In Mr. Blanchard’s article, he does not mention labor’s role in the economy. His article does not include the words labor and wage, and he only only used the word demand in relation to fiscal policy to sustain demand… Which brings me to Paul Krugman.

Paul Krugman wrote an article for the IMF, Increasing Demand. He writes…

“For the first time since the 1930s, the world appears to be suffering from a persistent lack of adequate demand;”

Doesn’t it sound like he is referring to Effective Demand which Keynes put as a central idea in his General Theory book during the 1930’s? Chapter 3 in his book was titled, The Principle of Effective Demand. Keynes said that output would fall short of full employment with insufficient effective demand. Krugman says as much here…

“First, we don’t really know how far below capacity we are operating… Nobody knows—and it would be tragic to accept low output and high unemployment as inevitable when they might be simply reflections of insufficient demand.”

As I understand effective demand, we CAN know how far below capacity we are operating. I have presented many graphs to this effect on Angry Bear before. We are actually near the effective demand limit, which means we are reaching the limit in the utilization rates of labor and capital (unemployment and capacity utilization).

Mr. Krugman writes…

“This in turn implies that sustaining adequate demand is hugely important, not just for the short run, but for the long run too.”

So what is his solution? Do we need to raise labor’s share of national production so that they can “demand” a larger percentage of total productive capacity? No, Mr. Krugman points instead to the ZLB and fiscal spending.

“On one side, central banks are constrained both by the zero lower bound—the fact that interest rates can’t go negative—and by concerns over the size of their balance sheets.”

“On the other, fiscal policy, far from helping, quickly began making things worse. It has been hobbled both by asymmetry between debtors and creditors—the former forced to cut, while the latter have no obligation to expand—and by political infighting.”

Funny how these grand economists focus on monetary & fiscal policies, while the struggle of labor seems to be off their radar. That smells of being hoity-toity from MIT (sorry guys). I know they are aware of labor’s struggle, but they should not leave out labor from these high-profile articles.

Meanwhile labor is faced with an economic reality where countries are holding down wage share in order to compete globally with the likes of Germany and China. Both countries have pushed labor share down since the turn of the century, thereby raising their national savings and inflating their trade surpluses.

Neither negative interest rates, nor increased fiscal spending would reverse the global pressure to lower labor share. Lower labor share means lower effective demand. Mr.Krugman writes…

“So inadequate demand is still a very big problem, and looks likely to remain so for a long time to come. We need to find a way to deal with this situation.”

Knowing the writing of Mr. Krugman, I assume his solutions would center around more fiscal stimulus, a higher inflation target and keeping nominal rates very low for a long time.

We must realize that the problem has to do with labor not receiving a healthy share of the income from national production. We must realize how that affects demand, investment, the ZLB, weak government spending and inflation. Then we must realize that monetary & fiscal policies are limited in their ability to increase effective demand because they do not directly increase labor share. Their influence on labor share is controlled by global market forces. and Remember, Germany and China did not push down labor share through fiscal or monetary policies. These policies will not raise it either.

What is the solution? Labor needs to rise in power globally. They need the power to demand more share of national income.

We hear about how wages are rising in China. Does anyone remember the thousands upon thousands of labor strikes across China in the last 10 years. Does anyone remember the beatings of labor organizers in China just within the last 10 years? Labor in China has fought for wage gains. They received some, but still not enough.

So Mr. Blanchard & Mr. Krugman look for answers. Yet, sufficient Effective Demand depends upon labor receiving a larger share of national production than they currently receive. No one is going to just give it to them. Labor will have to fight for it.

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History Quiz

I wonder what happens when a Democratic canidate for President campaigns on a proposal to increase taxes on high incomes and cut taxes on middle and lower class incomes (that is on the class warfare platform) ? IIRC what happens is that he gets elected. This is what Clinton did in 1992 and Obama did in 2008 (and Obama also kept the promise).

So Quiz question — who was the last Democratic candidate to defeat a Republican who
1) was not an incumbent
2) didn’t propose raising taxes on high incomes and cutting them on middle class incomes when the top marginal income tax rate was under 70%70% 62% even though this would have been constitutional ?

Answers after the jump

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Understanding Piketty, part 4

We now come to the exciting conclusion of Thomas Piketty’s monumental work, Capital in the Twenty-First Century. This is not an exaggeration: the final part of the book contains findings that I consider to be simply bombshells in their significance.

In Part 4, “Regulating Capital in the Twenty-First Century,” Piketty calls for a new “social state” for the new century, as well as a new way of taxing, a progressive tax on capital. Highlighting the United States, France, the United Kingdom, and Sweden as representative, he shows that all followed similar trends in taxation. Until World War I, all four collected less than 10% of gross national income in taxes. By 1980, the figures had increased to levels ranging from about 30% in the United States to 55% in Sweden. Since 1980, those levels are essentially unchanged.

As discussed by Alan Krueger, countries with high inequality tend to have lower inter-generational income mobility. This holds true in particular for the United States. In fact, Piketty says “the most firmly established result” of research on this question is that the U.S. has the highest correlation of income from one generation to the next (lowest mobility), and the Nordic countries the lowest correlation (highest mobility). The fable often told by conservatives that “we may have inequality, but that changes over generations” is not true today and, more surprisingly, was not true in the twentieth century when the U.S. had lower inequality than Europe.

One reason for this lack of mobility could be the high cost of college, especially among top schools. According to the Harvard financial aid website, tuition and fees come to $43,938 per year. Piketty estimates that the average (mean) income of Harvard students’ parents is $450,000 per year, which is enough to put you in the top 2% of U.S. incomes. Harvard notes that “>70% of our students receive some form of aid,” which isn’t surprising when you run the cost calculator. A family of three with just the one child going to Harvard can receive financial aid even with an annual income of $240,000.

While I have written before about the coming retirement crisis, Piketty points out that it’s not just the United States where Social Security is the only thing standing between seniors and poverty. He writes (p. 478), “in all the rich countries, public pensions are the main source of income for at least two-thirds of retirees (and generally three-quarters).” Ending senior poverty which, as he says, was “endemic as recently as the 1950s,” is the third main outcome of the expansion of the social state (after education and health expenditures). As I’ve said before, we need to keep senior poverty from reappearing.

Piketty considers the future of pensions in a low-growth environment. He notes that in pay-as-you-go (PAYGO) systems, such as Social Security was before the creation of the Trust Fund in the 1980s, “the rate of return is by definition equal to the growth rate of the economy.” Thus, he says, it would be wise to promote rising wages, for example through increased education funding and even policies to increase the birth rate (pp. 487-88). When r>g, however, it seems logical that money for future pensions should be invested to take advantage of the higher return on investment. That was one of the arguments for privatizing Social Security. However, transitioning to a PAYGO system runs into the huge problem that “an entire generation of retirees is left with nothing.” Of course, this is exactly what has happened in the United States and why we are looking at a looming middle class retirement crisis. However, it has not taken place in the Social Security system, but in the area of private pensions. That is, while public pensions in continental Europe equal 12-13% of national income (p. 478), they are only 7-8% in the United States so, traditionally, private pensions picked up the slack. But we now face a situation where 49% of private-sector workers have no pension at all, 31% have been stuck with a defined-contribution plan (401-k, 403-b, etc.), and only 20% have a true pension. Since the 1980s, workers have been transitioned off of defined-benefit pensions and on to — nothing! Well, almost nothing, as we can see from the $6.6 trillion shortfall between what people need to maintain their current standard of living and what they’ve actually saved for retirement.

Moreover, investment-based systems suffer from having much higher variance in their returns, a problem that is magnified when investment accounts are individual rather than collective, i.e. as with the Trust Fund. Indeed, as Piketty says, “the rate of wage growth may be less than the rate of return on capital, but the former is 5-10 times less volatile than the latter.” This is especially a problem, I would argue, when the level of retirement benefits is low relative to pre-retirement income, as it is in the United Kingdom and the United States. Piketty’s preferred solution is to keep PAYGO pensions, but supplement them with guaranteed rates of return for small savers that are closer to r than to g. However, this may have problems of its own. First, where will lower-income people get the money to save in the first place, with falling real wages and all? Second, how will government finance the guarantee in a way that is cheaper than just expanding Social Security? Expanding Social Security has the advantage of shielding individuals from the volatility of the market (and the fact that small investors earn lower rates of return than large investors) while offering a risk-free return (the Trust Fund is invested in Treasury bonds).

Piketty next turns to the progressive income tax, which he calls “the major twentieth-century innovation in taxation” (p. 493). However, in the twenty-first century, it faces two related challenges. First, it is being undermined by international tax competition, including from tax havens. Second, at the very top of the income hierarchy, the income tax is turning regressive, i.e., having lower rates than for those further down the income scale. This is the point Warren Buffett refers to when decrying the fact that he pays taxes at a lower rate than his secretary.

Piketty argues that one reason the progressive income tax is coming under intellectual attack today is that it was adopted chaotically, without time for all its implications to be debated. The tax, he says, “was as much a product of the two world wars as it was of democracy” (p. 498). That is, while many countries had adopted income taxes before World War I, it is only in the aftermath of the war that the top tax rate in major countries exploded. For example, the U.S. top marginal rate went from 7% in 1915 to 77% in 1918. In the United Kingdom, it went from 8% to 60%; in Germany from 4% to 40%, and in France, from 2% to 50%, all in the space of a few years.

Indeed, in both income and estate taxation, the United States was a leader with high rates. Piketty points out that the top marginal rate in the U.S. averaged 81% for the 48-year period from 1932 to 1980. While Britain had similar rates over a long period of time, no other European country did.

Okay, now for the bombshells. As you probably know, top marginal tax rates fell after 1980 everywhere among developed OECD (Organization for Economic Cooperation and Development) member countries. This seems to have increased the incentive for high earners to increase their compensation. In fact, in all 18 countries in the World Top Incomes Database, “the two phenomena are perfectly correlated: the countries with the largest decreases in their top tax rates are also the countries where the top earners’ share of national income has increased the most (especially when it comes to the remuneration of executives of large firms)” (p. 509).

Having the incentive to try for bigger pay raises, managers took advantage of the fact that “it is objectively difficult to measure individual contributions to a firm’s output” and persuaded their employers to give them big raises, often helped by the fact that their compensation committees were composed of people like themselves. So, Piketty says, it is really a question of bargaining power at the top (and don’t forget that he already told us that there is no correlation between executive compensation and firm performance).

Not only did the countries with the biggest cuts in their top marginal tax rate see the greatest increases in top income shares, but at the same time they did not show any greater increase in productivity growth. So top managers were not creating some generalized increase in productivity that they had some kind of moral claim to. In fact, as Piketty points out, productivity growth was 2.3% annually from 1950-1970 but only 1.4% per year in 1990-2010. Yet it is the latter period in which executive pay mushroomed, not the former.

You can probably see where this is going. The entire idea that people’s pay level is based on their marginal productivity, such that they “merit” the incomes they earn, is bunk. It is innately hard to measure marginal productivity, and some people have more bargaining power than others (not to mention greater incentives to bargain hard) for reasons that have nothing to do with productivity. In fact, Piketty, Saez, and Stantcheva found that executive could achieve big raises without great performance most easily in countries with the lowest top marginal tax rate. Thus, the theoretical edifice for the claim that inequality is “fair” collapses.

What can counter the massive increase in incomes at the very top of the distribution? If we stick with income tax, Piketty says that the optimal top marginal rate in the United States is 82% (p. 512). This would apply to the top 0.5% or top 1% of incomes only. This would not affect productivity because it would largely wipe out some economically useless activities. Because those activities would disappear, a tax that high would not raise much revenue. If the United States wanted to raise revenue, Piketty suggests a marginal tax rate of 50-60% on incomes in the top 5%. It’s important to note that while the United States could do this because it is the world’s largest national economy, it is not possible for European countries unless they achieve fiscal coordination. This is extremely difficult due to EU rules requiring unanimity on votes affecting direct taxation (personal and corporate income tax).

The ideal solution, he argues, would be a global tax on capital plus “a very high level of international financial transparency” (p. 515). Piketty recognizes that this is infeasible right now, although he says it might be possible “incrementally,” at the European level, for example (which would still run up against EU voting rules). He argues, though, that the alternative could well be worse: If people view inequality to have reached unacceptable levels, the response might be a breakdown of the global economy via widespread protectionism. (I offer a similar argument at the end of Competing for Capital.) A tax on capital allows high levels of trade to continue while directly addressing the problem of inequality.

One important element of achieving international financial transparency is shutting down bank secrecy. For Piketty, without solid information on inequality (and hence on individuals’ ownership of capital), it is impossible to have a democratic debate about the type of taxation and government services that individuals want. Tax havens and their defenders will whine about this being an intrusion on people’s privacy, but Piketty’s response is compelling (p. 522):

No one has the right to set his own tax rates. It is not right for individuals to grow wealthy from free trade and economic integration only to rake off the profits at the expense of their neighbors. That is outright theft.

For this reason, he advocates the automatic exchange of bank information to ensure transparency.

Piketty argues that we should not rely solely on an income tax. The fact of the matter is that capital ownership generates much economic income (such as capital gains) that doesn’t have to be declared year-to-year. As a result, income tax filings grossly understate rich people’s true income. This means that the problem of tax regressivity at the top is even worse than he discussed under the income tax. He goes back to the example of L’Oréal heiress Liliane Bettencourt. Her wealth exceeds €30 billion, and her rate of return is somewhere between 6% and 7% a year (€1.8-€2.1 billion in economic income). Yet she herself has said that she has never declared more than€5 million per year in income. Even if she’s paying 50% of this figure in income taxes (France’s top bracket is currently 53%), that €2.5 million is barely 0.1% of her economic income. It is hard to get taxation more regressive than that.

Not only would a tax on capital create financial transparency while raising a modest amount of revenue (Piketty envisions 2% of European GDP), but Piketty argues that an extraordinary tax on capital on the order of 15% could wipe out Europe’s current debt problems. As he says (p. 540), “From the standpoint of the general interest, it is normally preferable to tax the wealthy rather than borrow from them.” The alternatives are inflation, which governments have frequently used, and austerity, which Europe is currently using with predictably bad results. Moreover, he says, it is possible to get more precise targeting of the distributional consequences you want with a wealth tax than with debt repudiation or inflation.

I mentioned before that Piketty believes that the United States is large enough by itself to levy an 82% top income tax rate, whereas Europe isn’t. The same is true, in his view, on a capital tax (he also thinks China might be able to effectively tax capital). Europe’s problem is that tax competition is particularly intense, a problem he lays at the feet of the smaller economies, particularly Ireland (no surprise there). Piketty sees the creation of fiscal union (with EU-wide corporate income taxes apportioned to each country by formula) as no more utopian than the idea of creating the euro. Indeed, he seems to think that political union is ultimately necessary to end destructive tax competition, though he is pleasantly surprised at the traction gained for instituting a European financial transaction tax. He proposes a “budgetary parliament” for the Eurozone that could make democratic decisions on fiscal matters, and argues that it should not be bound by any fixed rules limiting deficits or debt — which will be nearly impossible to get Germany to agree to.

He concludes by reminding us that we cannot escape the possibly infinite concentration of capital that follows from r>g unless governments take proactive policies, most importantly an annual progressive tax on capital. The inequality r>g does not follow from market imperfections, so it cannot be solved simply by making markets more competitive. While he acknowledges that there is a real risk that increased European integration could lead to the shriveling of the social states constructed in each nation, the problem is that this is inevitable in the absence of creating a political entity large enough to regulate capitalism. “If we are to regain control over capitalism, we must bet everything on democracy — and in Europe, democracy on a European scale.”

For those of us in the United States, we already have a political entity big enough to battle the pressures for greater inequality. But of course we have numerous obstacles in our way as great wealth buys high levels of political influence, especially in the Citizens United era.

My next post will provide a summary and critique of the book (after a chess tournament break).

Cross-posted from Middle Class Political Economist.

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Browncare. Go for it, New Hampshirites! It’s BETTER!

In a new radio interview, [Massachusetts senator-cum-New Hampshire senate candidate Scott] Brown professes support for protecting people with preexisting conditions and other general goals of the law. But he reiterates his support for repealing Obamacare, claiming its goals should only be accomplished by states:

“I believe states can do it better. They can certainly cover preexisting conditions, cover kids to X age, whatever you want — catastrophic care, covering those who need additional coverages…other states have addressed these issues.”

But when asked whether, under Brown’s vision, states could decline to offer protections for preexisting conditions, Brown replied:

“I have to respectfully disagree. It’s something that’s very important for our state and its citizens. It’s something that more than likely would be covered in any type of plan that we offered…that is one thing that is important to me. I’ve already voted on something like that. And I would continue to support that.”

That appears to be a reference to Brown’s previous support for Romneycare in Massachusetts.

— Morning Plum: Scott Brown calls for replacing Obamacare with Romneycare, Greg Sargent, Washington Post, today

I, too, believe states can do it better.  If, say, they wanted to.  Which, since there was nothing to stop from doing better, or even from doing as well as, Obamacare, before 2010, and in fact there still is not—and since only one state, Massachusetts, did in fact do better. (Romneycare’s coverage of everyone who needed subsidies did not depend upon whether the person’s county agreed to accept payments from the state for people whose income is between the poverty level and 133% of the poverty level, after all, which for those who fell into that category, was, y’know, better.)

Since Obamacare is, in essence, Romneycare on a national level, with the exception that (to my knowledge) Romneycare had no distinction between in the way the subsidies worked, on the one hand, for people whose income under Obamacare means that they have no coverage at all if their state has not adopted the Medicaid expansion, and people whose income entitles them to federal subsidies under Obamacare irrespective of whether or not that their state has not adopted the Medicaid expansion.  And with the exception that, well, under Romneycare, the total cost of the subsidies was paid by the state of Massachusetts.  Rather than, y’know, the federal government.

So, take note, New Hampshirites: Scott Brown wants your state to pay the healthcare insurance subsidies for New Hampshire residents who now receive federal subsidies under Obamacare or who apparently are about to receive coverage paid virtually entirely by the federal government once New Hampshire adopts the Obamacare Medicaid expansion, as it reportedly is about to do.

Well, okay, he doesn’t want New Hampshire to actually provide subsidies to everyone who needs subsidies in order to afford healthcare insurance, as Romneycare did.  No, he wants those subsidies to go only to a certain segment of people who can’t otherwise afford healthcare insurance and who, until this year via Obamacare didn’t have insurance.  Because, y’see, it’s better—his word—to have a substantially higher percentage of New Hampshirites uninsured because they lack access to subsidies to help them afford it.

And he also thinks it’s better—his word—to have insurance premiums skyrocket because, under Browncare would, like Romneycare and Obamacare, prohibit insurance companies from declining coverage to people with preexisting conditions or charging them higher premiums, but unlike Romneycare and Obamacare, would not require anyone to purchase healthcare insurance before, say, they needed major medical care.

Unfortunately, though, Brown is not a candidate for governor or even for the state legislature.  So, as popular as Browncare is likely to be in New Hampshire, electing him to the U.S. Senate won’t cause New Hampshire to take over healthcare subsidies for some state’s residents who now receive federal subsidies under Obamacare, and to return many others to their pre-2014 uninsured status.  And electing him to the U.S. Senate won’t even cause healthcare coverage premiums to price many (most?) individual-market policyholders out of the individual market.

Well, at least not within the following two years, anyway–since Obama will remain president until Jan. 2016.  Or, if Obama is impeached and convicted of high crimes and misdemeanors, Joe Biden will be president for the remainder of the current presidential term.  If Brown is elected, this will be very frustrating for everyone who voted for him, as the continued presence of a Democrat in the White House will prevent New Hampshire from making it’s healthcare coverage system worse, er, I mean better.

Of course, there’s always the option of a coup.

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Obamacare Enrollment (part 2) Who Will Remain Opposed to Obamacare in 2015? “Zero-Sum Thinking”

In 2015, I predict that Obamacare enrollment will soar, matching 2014’s success.

This may seem counter-intuitive. After all, in recent months, the public’s perception of Obamacare seems to have soured. The Henry J. Kaiser Foundation’s health care tracking poll for July reveals that 53% of those surveyed last month said they view the Affordable Care Act unfavorably—a jump of 8 percentage points since June.  July’s results mark the first time since January, that more than half of all Americans opposed the health reform law

Is this because people who have enrolled in the Exchanges are unhappy with the insurance they purchased?


Most People Who Signed Up for  Obamacare Are Happy

Just one month earlier a Kaiser Foundation poll showed that “71%” of those who have enrolled in insurance plans that comply with Obamacare’s rules “rate their coverage as excellent or good overall,” and “more than half (55%) say it is an excellent or good value for what they pay for it.”

This is in part because in the Exchanges, middle-income as well as low-income customers qualify for government assistance to help cover premiums. As a result, 87% of customers have received subsidies that come in the form of tax credits.

Nearly six out of ten of Obamacare’s new customers were previously uninsured, Kaiser reports, while the remainder are “plan-switchers” – people who previously had individual market coverage and switched to new coverage after Jan. 1.  This group includes people who had their old policies cancelled as the ACA’s requirements kicked in, as well as people who switched for other reasons, including the availability of premium subsidies.

No surprise, customers who were forced to switch to a plan that meets Obamacare regulations are not as pleased as those who were previously uninsured. Yet nearly half of the “switchers” acknowledge that after using the tax credit, their new, more comprehensive Obamacare plan costs less than their old policy. This means that they are getting more for less. And I would predict that as they use their new policies ( and discover, for example, that preventive care is free)  many will become more enthusiastic.

Here is  the bottom line: “As a whole,” Kaiser observes, “enrollees are more likely than the public overall to have a favorable view of the ACA: they are roughly evenly split between positive and negative views (47% favorable vs. 43% unfavorable). By contrast, views among the general public are more negative than positive (38% favorable vs. 46% unfavorable.)

In other words, people who have had direct experience with Obamacare are more likely to support it. Those who have only read about reform are more likely to be opposed

What Determines Whether A Person Approves or Disapproves of Reform? 

A close look at the polls reveals that how someone feels about Obamacare has far more to do with his or her politics than with any direct knowledge of the program. Sixty-nine percent to Democrats view the Affordable Care Act favorably, compared to only 14 percent of Republicans.

The majority of those Republicans have never shopped the Exchanges because they don’t need Obamacare. Many work for an employer who offers generous benefits. Indeed, of the 15 million 20-somethings who have stayed on a parent’s employer-based plan, 63% identify themselves as Republicans. This is because Republican parents are more likely to have health benefits at work. Other Republicans who own their own businesses often fund their own medical care with money that they have tucked way in tax-advantaged health savings accounts. Finally, some Republicans shun the ACA’s marketplaces because they want nothing to do with government social programs–even if they might qualify for subsidies.

What Many Republicans Don’t Know About Obamacare

Since many have never priced policies in the Exchanges, Republicans are inclined to believe the misinformation that reform’s opponents have planted in the media, including the myth that Obamacare is “unaffordable.”

In truth, last year, after using his tax credit,  the average Exchange customer paid $82 a month for coverage. Many people shell out more for cable TV.

Here’s an overview of what various Exchange customers paid last year:

Somehow, the mainstream media rarely broadcasts these numbers. It’s easier to just quote a pundit’s claims about “sticker shock.” And sadly, as I have reported, these days, many journalists don’t have the time—or in some cases, the desire—to fact-check what their sources are saying. But as I suggested in part 1 of this post (URL) those who have enrolled in Obamacare are beginning to tell their friends. Word-of-mouth will play a major role in driving 2015 enrollments.

Zero-Sum Thinking

Meanwhile, it seems that the less someone knows about Obamcare, the more likely he is to disapprove.


Not long ago, Robert Blendon, a public opinion analyst at the Harvard School of Public Health, told ABC that “negative views about the law are driven by people who already had insurance”—in most cases, through their employer. “They worry that the coverage expansion will raise their premiums or compromise the quality of care they receive.”

‘Rightly or wrongly” he added, “people who are not directly aided by [Obamacare] are worried.”

When I asked Blendon to expand, he pointed to a recent advertising survey done by Kantar Media showing the large number of negative Obamacare ads running on commercial outlets.  Kantar estimates that since the Affordable Care Act passed in 2010, $445 million has been spent on political TV ads mentioning the law, and spending on negative ads has outpaced positive ones by more than 15 to 1.

Those ads have reached  wide audience, and in his e-mail, Blendon observed: “They all focused on what the risks are to middleclass individuals” who already have coverage. For example, some fret that if more people are insured, their doctors’ waiting room might be crowded.

In this way, Republicans have encouraged “zero-sum thinking” (the assumption that if someone else gains something, you may well lose something): “If more low-income families are insured, there won’t be enough doctors and nurses to take care of my me and my children.”

According to Blendon the advertising assault on the Affordable Care Act draws on lessons Republicans learned during the Clinton administration about harnessing “the ambivalence the middle class has about big reform” to win midterm elections.   They assume that “big reforms” won’t help them—and might cost them something.

I agree, though in this case I would say we’re not talking about the middle-class (defined as households earning roughly median income, or $52,000) Half of all Americans earn more than median income, half earn less. Upper-middle households, earning more than, say, $70,000, are more likely to enjoy employer-based coverage, in large part because they are more apt to be able to afford their share of the premium. (In 2012, 86% of families with joint income over  $75,000 enjoyed employer based coverage, vs. 31% of those bringing home $50,000 to 74,000 and just 12% of those earning $40,000 to $49,000.

As More People Experience the Reality of  Obamcare, Attack Ads Become Less Potent

Nevertheless, even the GOP is beginning to realize that the number of Americans who feel so economically secure that they feel ambivalent about government assistance for the middle-class is shrinking. More and more families realize that they–or their adult children–might well need Obamacare. As Bloomberg News recently reported, the fact Republicans have cut way back on ads that attack Obamacare in North Carolina, Louisiana and Arkansas is “a sign that the party’s favorite attack against Democrats is losing its punch.” 

What California Tells Us About the Future of Obamacare

Meanwhile, support is increasing in one state that has been particularly successful in enrolling the uninsured—California. Since the launch of the state’s health insurance exchange, Covered California, and the expansion of MediCal, the insurance program for low income people, California has extended coverage to more than 3 millions state residents, helping to cut the rate of the uninsured by half.

Meanwhile, state polls reflect growing awareness of the benefits of the ACA. The San Jose Mercury News reports;  “The nation’s new health care law is surging in popularity in the Golden State, according to the Field Poll, which finds more Californians today — of all political stripes — support the Affordable Care Act than at any time since it was signed into law four years ago.

The poll of 1,535 likely voters from June 26 to July 19 showed that 56 percent of registered voters say they support the law, while 35 percent are opposed.” Support is up six points from last year.”

Here, let me suggest that it’s worth remembering the old saw: ““Whatever is going to happen, will happen first in California?”

The biggest increase in support (or the largest reduction in opposition) is coming from those groups that were previously opposed or evenly divided.” the San Jose paper reported. “GOP support is up 5 percentage points from last year. And fifty-six percent of voters with no party preference, favor the law—up two percent from a year earlier.”

All in all, this seems an early indication that when it comes to health care reform, familiarity breeds support.

Originated at Health Beat Blog – Maggie Mahar

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The PPACA Takes on Bloated Healthcare Executive Pay in 2013

What impact would Congress have on corporations if it were to change the amount of tax-deductible executive performance-based compensation downwards from $1 million to $500,000? The portal to the upper 1% of household taxpayers in income is $500,000 in normal income. If Congress were to limit tax-deductible performance-based income to $500,000, the change would put an end to a large portion of the tax write-offs on executive pay by corporations. The JCT estimates $50 billion would be realized in a ten-year period. How serious is the skewing of income to a relative few to avoid corporate taxes? An IPS study found 25 of the 100 highest-paid corporate chief executives in the United States took home more in income than what their companies paid in 2010 federal income taxes.

As a part of the PPACA passed in 2010 this provision finally came into play in 2013. The provision “generated an ~ $72 million in additional tax revenue in 2013 from America’s 10 largest publicly held health insurance companies” as taken from “57 executives.” It is one of the lesser-known provisions of the PPACA which is increasing revenue to fund the PPACA. Sarah Anderson of the The Institute for Policy Studies just released the report of the impact of this provision for 2013. More of those healthcare companies will full under its impact in 2015 as the grandfathered bonuses pre-2010 expire created an ~$5 billion annually.

While it does not limit the amount of compensation to the top healthcare executives, the new performance-pay rule made taxable bonuses, stocks, etc. in excess of $500,000 taxable and down from $1 million previously. What companies could claim as deductible for executives dropped from 96% in 2012 to 27% in 2013 causing 10 corporations to owe an average of $1.3 million in taxes per executive. A similar provision with a broader scope is being considered under Senators Reid and Blumenthal’s Stop Subsidizing $Multimillion Corporate Bonuses Act (S1476).

Executive Excess 2014: The Obamacare Prescription for Bloated CEO Pay, Sarah Anderson, Sam Pizzigati and Marjorie Wood. Institute for Policy Studies August 27, 2014

Stop Subsidizing $Multimillion Corporate Bonuses Act Senator Reid and Senator Blumenthal

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