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

Facebook Face-Off ACA v Cathy McMorris Rogers

Doktor Zoom at Wonkette reports on the delightful and important consequences of the foolish decision by Rep Cathy McMorris Rogers (R-WA) to ask the public to report Obamacare horror stories on her facebook page.

Matthew Yglesias found it too.

Facebook isn’t reality (warning to the kids who might be ready) but it can be cruel to those who aren’t reality based. There were many reports from people who finally had insurance, were paying less for insurance or thought congress people who have excellent employer provided insurance should be capable of shame.

I think it is clear that McMorris-Rogers (or her soon to be ex staffer) genuinely expected Obamacare horror stories to outnumber Obamacare saved me from horrors stories. They live in the conservabubble. McMorris Rogers is relatively williing to try to be constructive for a member of the House Republican leadership (a very low bar). She proposed reforming the one size fits all ACA exchanges. She thus demonstrated that she hadn’t been to the healthcare.gov to enter a county for the one size fits one country menu offering a bewildering array of options.

At least she (or her soon to be ex staffer) deserves points for sincerity and allowring regular people to report reality on her facebook page.

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Diabetes Diagnoses Surge in States Which Expanded Medicaid

The big news is that expanded access to Medicaid causes increased diagnosis of diabetes which presumably causes better health in the not so distant future. Google is impressed.

I quote Sabrina Tavernise in The New York Times

The number of new diabetes cases identified among poor Americans has surged in states that have embraced the Affordable Care Act, but not in those that have not, a new study has found, suggesting that the health care law may be helping thousands of people get earlier treatment for one of this country’s costliest medical conditions.

One in 10 Americans have diabetes, and nearly a third of cases have not been diagnosed. The disease takes a toll if it is caught too late, eventually causing heart attacks, blindness, kidney failure and leg and foot amputations. The Centers for Disease Control and Prevention estimates that the disease accounts for $176 billion in medical costs annually. The poor and minorities are disproportionately affected.

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In the new study by Quest Diagnostics, a medical testing company, researchers analyzed laboratory test results from all 50 states in the company’s large database over two six-month periods. In the states that expanded Medicaid, the number of Medicaid enrollees with newly identified diabetes rose by 23 percent, to 18,020 in the first six months of 2014, from 14,625 in the same period in 2013. The diagnoses rose by only 0.4 percent — to 11,653 from 11,612 — in the states that did not expand Medicaid.

This is important news, but it shouldn’t surprise anyone. The reason is that we already know that expanded access to Medicaid causes more diagnosis of diabetes. This was an extremely statistically significant result of the New England Journal of Medicine study of the Oregon Medicaid lottery. Somehow, the study was interpreted as showing small (or for the statistically illiterate zero) benefits from Medicaid.

I love to say I told you so, but I told you so.

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On Baker & DeLong on House Prices Mortgages and Consumption

I commented on Brad DeLong commenting on Dean Baker asking Brad Delong a challenging question.

Brad decided my comment belonged on his front page, so I guess it belongs here too.

Baker wrote

Brad DeLong tells us that he is moving away from the cult of the financial crisis (the weakness of the economy in 2014 is somehow due to Lehman having collapsed in 2008 — economists can believe lots of mystical claims about the world) and to the debt theory of the downturn. Being a big fan of simplicity and a foe of unnecessary complexity in economics, I have always thought that the story was the lost of housing wealth pure and simple. (And yes folks, this was foreseeable before the collapse. Your favorite economists just didn’t want to look.)

Just to be clear on the distinction, the loss of wealth story says it really would not have mattered much if everyone’s housing wealth went from $100k to zero, as opposed to going from plus $50k to minus $50k.

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Finally, getting to the question in my headline, the current saving rate out of disposable income is 5 percent. This is lower than we ever saw until the stock wealth effect in the late 1990s pushed it down to 4.4 percent in 1999, it hit 4.2 percent in 2000. The saving rate rose again following the collapse of the stock bubble, but then fell to 3.0 percent in 2007. The question then for our debt fans is what they think the saving rate would be absent another bubble, if we eliminated all the negative equity.

I commented.

Baker is very smart and reality based, but he only discusses two components of aggregate demand, consumption and net exports. Consumption has, indeed, recovered. The anomalies are in government purchases of goods and services and residential investment. As I recall, your version of the debt story is that mortgage finance remains blocked. This is not a story about consumption by households burdened by mortgages and the counterfactual does not involve a lower estimated savings rate.

I do not entirely share your view that changes in mortgage finance are the cause of low residential investment. It could be that lending standards remain extraordinarily tight on the once burnt twice shy principal. But it could also be that the perceived user cost of owner occupied housing is extraordinarily high because the forecast relative appreciation of house prices is extraordinarily low (Shiller argues that it is also accurate, but certainly lower than it was for decades).

Back to Baker: I think he has trouble communicating with many economists exactly because he is reality based. His argument is based on the empirical regularity that the aggregate consumption time series is well fit mostly be disposable income and then by wealth including stock and housing wealth. Most economists consider the correlation of housing wealth and consumption an anomaly. High house prices imply both wealth and a high cost of housing services. The effects should roughly cancel. High house prices should cause high measured consumption (measured because not including consumption of owner occupied housing services) by causing people to substitute out of housing. In fact, they are correlated with high residential investment.

A simple model of rational inter-temporal utility maximization without liquidity constraints doesn’t fit the data at all. The immediate reaction of many economists is to conclude that the key issue must be liquidity constraints. I tend to suspect that Baker has no problem with assuming people are irrational and that high house prices make home owners feel richer even if they have no intention to sell and do not make young people who don’t own a house and will buy one eventually feel poorer. In any case, that’s what I believe. but no one should be surprised that most economists aren’t attracted to a simple story which depends on irrationality.

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McClatchy: Fed Interest Earnings Approach $100 Billion

Fed’s interest earnings approach $100b

WASHINGTON — The Federal Reserve said Friday it transferred a record $96.9 billion to the U.S. treasury in 2014, profits on its unprecedented $4.4 trillion in holdings designed to support the U.S. economy in the aftermath of the Great Recession.

Returning to a topic I have raised a few times here at Angry Bear: what is the real cost of financing U.S. Public Debt. Also interesting from the perspective of the repeated desire from the Right to “Audit the Fed”. More from the McClatchy piece:

The Fed’s total assets were $4.5 trillion last year and its holdings generated $115.9 billion in interest income, the central bank said Friday, and that reflected an increase of $25.5 billion from 2013. The Fed also paid banks $6.9 billion in interest income for their balances held at Federal Reserve district banks last year.

The independent Fed, which does not rely on Congress for funding, had operating expenses of $6.1 billion in 2014. This number included $1.9 billion to run the Federal Reserve Board, currency costs and operation of the Consumer Financial Protection Bureau, created in the 2010 revamp of financial regulation.

Lots to unpack here and plenty of directions to take the discussion. So rather than noodle on by focusing on my own preoccupations let me turn this over to AB readers. As a Federal Reserve/Public Debt/Quantitative Easing/CFPB Open Thread.

Update: Link to Fed’s Audit Report (h/t McClatchy) Board of Governors of the Federal Reserve System; Financial Statements as of and for the Years Ended December 31, 2014 and 2013, and Independent Auditors’Report

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Epic Fail for the Postal Service: The Wrong Model and the Wrong BOG

Guest post by

MARK JAMISON

via Save the Post Office

Epic Fail for the Postal Service: The wrong model and the wrong BOG

In 2001 Postmaster General Bill Henderson submitted the first blueprints for a transformation of the Postal Service into a sleeker, more efficient business entity.  To justify the transformation, the rhetoric has repeated one mantra: the problem with the Postal Service is its outmoded and defective business model.

A great deal of our speech with public policy is often coded — for example, “makers and takers” can often sound a lot like “black and white” — but in this case Henderson and his successor Jack Potter were pretty clear about their goal.  The way forward for the Postal Service, they said, would include cuts to the workforce, post office closings, a smaller postal infrastructure, and a general retreat from the idea of the Postal Service as a universal service provider.

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Who Owns the US Post Office?

Guest Post by

MARK JAMISON

at Save The Post Office

invisible hand

Who owns the post office?  Who is the post office designed to serve?  What is the system’s ultimate function?

These questions are fundamental to the future and the fate of the post office, the postal network, and postal services in this country. How we answer them will have a significant impact on businesses, workers, and communities.

We know the Constitution instructs — or more accurately, permits — Congress to make arrangements for post offices and post roads.  That is a good indication that the Founders sawpostal services and the infrastructure that supported them as broadly essential to the nation — nation in their reckoning being the sum of the people.

But Congress has abdicated its responsibilities.  It no longer functions as a deliberative body and has become increasingly ineffective as a legislative body.  The Postal Service’s Board of Governors has proven to be equally ineffective and has left postal managers to run operations as they see fit.  The regulatory system is relatively limited and not really able to represent the interests of the public as a whole.

All in all, the Postal Service is simply not accountable to the American people in the way it should be — or the way it must be if it is to survive as a vibrant public postal system, as envisioned by the Founders

In the debates about the Postal Service, the public interest is too often forgotten.  It’s worth quoting yet again the stirring words of Title 39:

“The United States Postal Service shall be operated as a basic and fundamental service provided to the people by the Government of the United States, authorized by the Constitution, created by Act of Congress, and supported by the people. The Postal Service shall have as its basic function the obligation to provide postal services to bind the Nation together through the personal, educational, literary, and business correspondence of the people. It shall provide prompt, reliable, and efficient services to patrons in all areas and shall render postal services to all communities. The costs of establishing and maintaining the Postal Service shall not be apportioned to impair the overall value of such service to the people.”

If these words are to mean anything, the leaders of the Postal Service, Congress, and the Executive branch must be reminded that the Postal Service is there to serve not some narrow economic interests but the people of the United States.

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Even the Liberal Jonathan Chait is Fed up with Netanyahu

I was intrigued by a very puzzling tweet (by @billmon1) which noted that Jonathan Chait had compared Benjamin Netanyahu to Yasser Arafat.

I thought that a very odd comparison as they don’t seem similar to me, except for the part about participating in negotiotiations but never actually accepting a final peace agreement.

But I now understand that’s not the point. It isn’t an analogy it’s an insult. Chait has burned the bridge between himself and hawkish zionists. In that circle, comparing someone to Arafat is an unfogiveable affront.

This is news, because Chait was one of the most prominent remaining liberal zionists who disagreed more with lefist critics of Israel than with hawks.

For what it’s worth, Chait explains his insult as follows

Netanyahu may be best understood as Israel’s Arafat — a master of nationalist politics, yet also disastrously lacking any strategic vision, and able to survive only at the deep and possibly fatal cost to his own people’s long-term aspirations.

I disagree. I agree that Arafat didn’t have a strategy but, it seems to me that Netanyahu has a strategy. The status quo is acceptable to Netanyahu and the then (and now) status quo was not acceptable to Arafat. Netanyahu has most of what he wants except for occasional rocket flying from Gaza. Arafat never accepted a state without Jerusalemn, but he ended up without a state at all.

Chait argues that, in the long run, Israeli’s who follow Netanyahu will pay costs similar to those paid by Palistinians who followed Arafat. But he doesn’t explain why or how this will happen any more effectively than Herzog did. He mentions a possible security council resolution which, I’m sure, terrifies Netanyahu.

Still the open outspoken expression of Chait’s hate of Netanyahu is news.

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Alice Rivlin: Financial Instability now more a Concern than Inflation

Alice Rivlin has a wonderful speech about Fiscal & Monetary Policy in a Post-inflation World. Her basic point among many keen insights is that financial instability should be more of a priority now than inflation.

I agree with her. Monetary policy should focus on the wild beasts of the economy, not the domesticated pets. Inflation is not the wild beast it was before the 80’s. It is a domesticated pet now, not likely to run away.

The wild beasts are now financial instability and the growing power of capital. The Fed should put financial instability as a priority above inflation in their mandate. She does not recommend that the Fed raise interest rates, but something needs to be done.

Alice Rivlin…

“But suppose that the major advanced economies actually face a new “normal,” in which inflation is low on the list of threats. In this new world the top-of the-list threats to prosperity in large advance economies are financial instability, slow growth with tendencies to deflation, and the concentration of income, wealth and political power in the hands of a small number of people”

Financial instability in the advanced economies is a far greater threat to world prosperity than the risk that inflation could get out of control. Unfortunately, if central banks keep interest rates low enough for a slow growth world, they risk creating asset price bubbles based on cheap credit that can end in financial catastrophe. Raising rates is not the right response to containing asset price bubbles or avoiding financial meltdown.”

She does contradict herself a bit here by saying that while low interest rates risk financial instability, raising rates is not the response. She prefers other tools, but those other tools are not working.

“An array of sharper tools is needed. Dodd-Frank was an attempt to create those sharper tools, but, like all major legislation, it was an elaborate compromise among multiple stakeholders. We are still a long way from agreement on how the tools should work and how to use them. The hydra-headed financial regulation structure that survived the crisis has not demonstrated an ability to work effectively together.”

So the Fed may be left with raising rates as the most effective tool to control the wild beast of financial instability.

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