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Recession or Resetion?

Reset button on white background

I wrote last summer that the Dow would not rise much above 17,300 and then eventually drop from that level into a recession. We see markets dropping now, but are they dropping into a recession or a resetion?

What is a resetion? That is when the markets “reset”. Stock values have been high so at some point they need to come back to reality. Many companies have been overvalued. Now is the time to reset stock values.

The difference between a recession and a resetion is that a recession hits the whole economy and a resetion hits certain markets and business values.

In a recession and a resetion, many companies are challenged to survive and some end up fading away. Ultra-low interest rates have kept inefficient companies alive which have kept down wages and productivity. The survivors come out stronger.  Productivity rises after.

We will see at least a resetion of the stock markets. But will we see a recession in the whole economy? Well, there is a need for a resetion of the whole economy too. Rent prices are pressuring the budgets of many people.  Inefficient companies need to be weeded out. Asset prices beyond stocks need to reset too. So a resetion (resetting) of the whole economy could result in some healthy changes.

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The little problem with Clinton’s message that Krugman doesn’t mention in his critique of Clinton and Sanders today: Her incessant claim that only taxes bears negatively against “incomes”. [Edited and typo-corrected. 1/20 at 11:34 a.m. Addendum added 1/20 at 11:50 a.m.]

[T]there are serious questions about how we’re going to pay for what we want to see our country do. And, I’m the only candidate standing here tonight who has said I will not raise taxes on the middle class. I want to raise incomes, not taxes, and I’m going to do everything I can to make sure that the wealthy pay for debt free tuition, for child care, for paid family leave. To help us bring down student debt we’re going to refinance that student debt, saving kids thousands of dollars.

Yeah, and that will also come out of the — some of the pockets of people in the financial services industry…

— Hillary Clinton, during Sunday night’s debate

Yep.  She wants to raise incomes, not taxes.  Because all that matters to the financial bottom line of ordinary folk is taxes.  Or so ordinary folk think, cuz they can’t do simple math computations and don’t own calculators that do that.

Or so wealthy Democrats like Clinton, her army of campaign consultants, and Paul Krugman think.

In a blog post this morning critiquing Clinton politically strategically and Sanders substantively, Paul Krugman diagnoses Clinton’s main political problem as against Sanders this way:

[Clinton’s] biggest vice, from my point of view, is listening too much to consultants who want to make cheap shots, like the claim that the Sanders plan would kill Medicaid, when her real strength comes when she lets her inner wonk and fundamental toughness shine through.

Krugman hits Sanders as dishonest for making claims of massive savings in healthcare expenditures in his single-payer plan.  Fair enough—and I dearly wish Sanders would read this post of mine from this morning on healthcare expenditure issues.  (Yes.  My post on this subject.  It’s a good post.  Really.  It mentions Uwe Reinhart!  Who now will post something somewhere on the Supreme Court, in retaliation.*)

But does he think Clinton will actually be able to pay for what she proposes by taxing only the wealthy?  Just wonderin’.

Far more important, though, does he actually think it’s a terrific idea for Clinton to use as a campaign mantra that raising incomes for the non-wealthy and raising taxes on the non-wealthy are mutually exclusive, thus defining “incomes” in a remarkably crimped way?

Why does he think Clinton should claim that, say, healthcare premiums and out-of-pocket healthcare expenditures don’t effect “income” in any but the narrowest sense if those payments are made not to the federal government (horrors!) but instead to UnitedHealthcare, Anthem Blue Cross, hospitals, medical labs, and physicians?

Depends on what the meaning of “incomes” is.  Y’know?

Krugman is exactly right that Clinton is listening too much to consultants who want to make cheap shots, like the claim that the Sanders plan would kill Medicaid.  Actually, though, she should stop listening to political consultants at all.  It doesn’t instill confidence in her abilities as a candidate or officeholder that she mouths imbecilic and easily-verifiably false soundbites proposed by these political consultants.

Or did she actually expect that voters would assume she was correct that Denmark is not a capitalist country and that it has low levels of innovation and a low standard of living?  And that Bernie Sanders wants to remove healthcare coverage from huge swaths of people—or from anyone, for that matter, because universal healthcare coverage means universal for almost no one.

Depends on what the meaning of “universal” is, I guess.  According to Clinton, her daughter, and her campaign, anyway.

It also depends on the meaning of weird. This falls comfortably within that definition.** But a campaign consultant said this was a terrific way to counteract Sanders.  Because …. um …. who knows? Reason enough for Clinton to run with it.

Same with the Republican-governors-could-kill-single-payer-so-I’m-supporting-Obamacare-whose-marketplaces-provision-works-vis-à-vis-the-states-exactly-like-the-2013-Sanders-bill-would.  Nothing—no issue, no matter—is too important for Clinton to profoundly mislead about it. She isn’t paying all those consultants those huge fees for nothin’, you know. She’s gonna get her money’s worth.

Live by the sleight-of-hand, die by the sleight-of-hand.  Or at least because of the sleight-of-hand: you’re own.  At least if your opponent is now, finally, getting real media attention and has a zillion followers.  Who use social media!

But Krugman makes another big mistake that Clinton and her campaign also make: He conflates Clinton’s toughness in defending herself against Republican attacks with toughness in deconstructing, for the public, Republican memes and specific legislative proposals.

Clinton, Professor Krugman, is not Elizabeth Warren.  Warren never conflates herself as an individual with her skill as a policymaker and as a communicator on policy, hers and theirs.  Clinton incessantly does.

Click Krugman’s link, above, to “fundamental toughness”, and up pops a picture of Clinton at … surprise! … the Benghazi hearing last October!  Seriously.

Seriously?

Sorry, Professor Krugman, but I-want-to-raise-incomes-not-taxes is the very antithesis of toughness against Republicans. It’s unnerving that Clinton doesn’t recognize that.

This matters. A lot.

What Krugman gets right in his post today is his reiteration—he’s said this before—that Sanders really, really needs to make clear that he recognizes the abiding importance of regulating the shadow finance industry.  He needs to retain a real expert in this to formulate a specific, detailed proposal to address this.

Please, Sen. Sanders.  Please do this.

But Clinton needs at least as much to ditch the I-want-to-raise-incomes-not-taxes slogan, and to recognize, belatedly, that the price of some cutesy soundbites can be high.

As an alternative, she can switch parties.  Or could if it weren’t too late.

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ADDENDUM: Here in sum is the point: Clinton says that the only thing that matters to people’s bottom line is the amount of taxes they pay.

Which apparently is largely true for the wealthy, but is hardly true for the middle class and so-called working class–whose financial bottom line, financial security and standard of living is impacted tremendously by such things as healthcare insurance premiums, whether paid to the government or instead to a private company, and out-of-pocket payments to hospitals, medical labs and physicians.

That’s was so enrages me. Clinton claims by that soundbite of hers that all that matters is “income,” not income minus such things as private-healthcare-insurance premiums and out-of-pocket payments for health care. Added 1/20 at 11:50 a.m.

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*For those who don’t read Angry Bear regularly, the Supreme Court is my area of expertise; healthcare economics is definitely not.  So that sentence was intended as a joke.

** Sentence rewritten to make sense. Paragraph corrected also to change “know” to “knows.” Post (obviously) written hurriedly yesterday (I had only a few minutes to write it) and posted in anger.  Rather than deleting it, since there are comments posted to it, I edited it somewhat.  The post’s sentiment remains intact. 1/20 at 11:34 a.m.

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FOLLOW-UP TO: The critical point that Paul Waldman highlights, perhaps unwittingly, about the healthcare debate between Clinton and Sanders

FOLLOW-UP TO: The critical point that Paul Waldman highlights, perhaps unwittingly, about the healthcare debate between Clinton and Sanders

I exchanged the following comments with reader Lyle in the Comments thread to my post titled “The critical point that Paul Waldman highlights, perhaps unwittingly, about the healthcare debate between Clinton and Sanders”:

Lyle /January 18, 2016 6:31 pm

The question I would put to Sanders: Hospitals say that they lose money on medicare patients and make it up by charging those with insurance under 65 more. If they are being truthful how many hospitals would your plan drive out of business, or force major modifications to. How many physicians would retire if they could only get medicare reimbursement rates?

Now perhaps then you move to a model like the Japanese system, where once a year the providers and the government negotiate fees,

 

Beverly Mann / January 19, 2016 10:57 am

Lyle, quite a number of rural hospitals went under, with tragic results—they were the only hospitals within a range of, say, more than 100 miles—after the ACA kicked in, in states that refused to agree to the Medicaid expansion, because the Medicaid program as structured before the ACA had included substantial subsidies to hospital apart from the Medicaid benefit to individual recipients that paid ER bills and such.  The ACA switched that part, and only that part as I understand it, to the Medicaid expansion provision in the ACA, presumably as encouragement to states to adopt the Medicaid expansion.

In other words, it was the federal government that was keeping many hospitals afloat, and still is in states that accepted the Medicaid expansion.

Look, in every other modern-economy, Western-style democracy in the world, the government funds the country’s hospitals as part of the country’s healthcare system. The hospitals do just fine in countries—which is all of them, I believe—that have that system.

As for doctors, I have no idea how many would leave the profession if their incomes were cut.  But, without question, this country needs more medical schools and more residency positions; that’s been the real bottleneck in the medical field.  There are large numbers of people graduating from college with premed credentials who aren’t accepted to medical school because of the small number of medical schools and small class sizes.  And there are many more who would get the premed credentials if they thought they had a decent chance to get into med school—and would have a way to fund it.

Which brings me to this: Medical school should be tuition-free.  At public and private universities alike. This would be a really inexpensive way to eliminate one big reason that justifies the sometimes-exorbitant fees doctors charge.  The government should pay off young doctors’ current medical school loans, and, in my opinion, during the financial transition period should offer physicians stipends to compensate somewhat for lost income.

Many doctors, especially so-called primary physicians—internists, family practitioners, pediatricians—while they have comfortable incomes, don’t make huge amounts of money.  Specialists, especially surgical specialists, do, mostly, I believe.  I have the greatest respect for them and for all competent and dedicated physicians.  But maintaining the huge fees many of them charge just cannot justify the huge costs of healthcare in this country.

What strikes me as absolutely necessary—the Clinton administration’s failure to do so in 1993, and the Obama administration’s failure to do in 2009, were respectively fatal and deeply harmful to the effort—is to place one of the most accomplished healthcare economists at the helm of structuring the plan: Princeton’s Uwe Reinhardt.  There are a few, but only a very few, others who could play the role well.  That Bill Clinton put his wife, who had no background whatsoever in this, as head of his administration’s effort, and that Obama mostly just delegated the entire project to Congress, were foreseeably awful decisions.

There is no question, in my opinion, that physicians’ groups must be major players in this process.  But the issues you raise are not insurmountable obstacles, or should not be—any more than they were in any of the other many countries that have excellent universal healthcare whose costs are far lower than the costs of this country’s current system.

These are, obviously, critically important issues.

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The critical point that Paul Waldman highlights, perhaps unwittingly, about the healthcare debate between Clinton and Sanders

Back when I was in college, a professor in one of the science courses I took in order to fulfill the Liberal Arts Science requirement made the point—maybe specifically in refutation of Creationists, although I don’t remember—that it is scientists, not those who contest and try to interfere with scientific discoveries, who will ultimately prove or disprove scientific theory.

A blog post this morning by Paul Waldman in the Washington Post about the healthcare insurance debate between Clinton and Sanders, which I just read, reminded me of that professor’s observation.  Waldman says:

Clinton’s theory of change is practical, realistic and born of hard experience. But it’s also not particularly inspiring. It takes opposition from Republicans as a given and seeks to avoid direct confrontation with certain powerful interests. It’s essentially the same theory Obama operated on in 2009, when his administration set about to co-opt the insurance and pharmaceutical industries instead of fighting them. And it worked — after half a century of Democratic failure on health care, they passed sweeping reform.

Sanders’s theory of change starts from the unspoken presumption that the ACA was in its own way a failure, because it didn’t change the system enough — there are still people left out, and though costs have been reined in, we still spend far more than countries with single-payer systems, and always will as long as we have a system based in private insurance. The problem with Sanders’s theory, however, is that it’s vague on getting from where we are to where he wants to go. He talks about the need to “stand up” to special interests and create a “revolution,” but standing up isn’t a plan.

Lest any of my friends supporting Sanders call me a squish, I’d note that I’ve been touting the benefits of single payer for years. In various forms it has been tried and worked far better than our system in every other advanced country in the world. In places like France or Germany or Japan, everyone is covered, the quality of care is as good or better than what Americans get, and it costs dramatically less than our bloated, inefficient system. But — and it’s a big “but” — moving from our current system to a single-payer system would be an extremely complicated endeavor, both practically and politically. If you tried to do it all at once, the opposition from both Republicans and the affected industries would make the fights over Bill Clinton’s and Barack Obama’s health-care plans look like nap time at the preschool.

But that doesn’t mean Sanders’s ideas about health care should just be dismissed. It’s no accident that he’s getting the support of millions of idealistic Democrats. He’s a radical, in the traditional sense of the word as one who gets to the root of things.

A real primary debate needs the elements that both Sanders and Clinton provide: on one hand, a fundamental examination of what drives the system and a vision that speaks to the party’s essential values, and on the other hand, a realistic assessment of what the next president can accomplish. That’s why even though they have a profound disagreement on health care, both of them are right.

Sanders, though, isn’t really vague that major restructuring of how political campaigns are financed in this country is a prerequisite to enactment of a single-payer, Medicare-for-all system, and that a prerequisite to that in turn is massive involvement in our electoral system by people who want these.

But Waldman’s post illustrates exquisitely that the point my long-ago professor made about scientists is true also about Bernie Sanders’s candidacy.

I’m not a scientist, man. But I applaud and support them.  As I do, now, Bernie Sanders.  For similar reasons.

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Hillary Clinton just handed Republicans a devastating ad against her? Really, Chris Cillizza? Devastating?

Hillary Clinton had a clear strategy going into Sunday night’s fourth Democratic presidential debate: Hug President Obama — at all costs.

“We have the Affordable Care Act,” Clinton said. “That is one of the greatest accomplishments of President Obama, of the Democratic Party, and of our country.”

“I’m going to defend Dodd-Frank and I’m going to defend President Obama for taking on Wall Street, taking on the financial industry and getting results,” she said.

“I was very pleased that leaders of President Obama’s administration went out to Silicon Valley last week and began exactly this conversation about what we can do, consistent with privacy and security,” she said.

Hillary Clinton just handed Republicans a devastating ad against her, Chris Cillizza, the Washington Post, today.

Clinton, of course, was pandering, early and (very) often, mainly to African Americans—whom she made clear especially in her ridiculous assertion, stated at least twice last night, that Sanders in 2011 wanted a primary challenge to Obama’s reelection but in other respects as well, that blacks are deeply offended by any criticism of Obama.

Sanders, like me and many other progressives, was livid at Obama’s handling of the Republicans’ debt-ceiling shakedown.  All Sanders needs to do is remind people of, say, budget sequestration and its specific effects.  And (as he does regularly and did last night) of Obama’s Justice Department’s failure to indict any human major player in the finance industry’s financial frauds connected to the industry’s teetering on the brink of collapse in 2008.

I kept wondering as I watched the debate last night whether significant numbers of African Americans would find the brazenness of her pandering offensive.

But, really.  I know that the Republican establishment candidates—those who are so, openly, and those who try hard to hide it—think that most Americans think the finance and securities industry is too lightly regulated.  After all, that’s what their donors think; why wouldn’t ordinary folk think so, too?

But apparently ordinary folk don’t. Thus, the awesome poll numbers for Jeb! And Marco! And Christie!

Yup. Positively devastating to a Clinton general-election campaign that she defends Dodd-Frank.  And Obamacare. Because the healthcare system and the financial services industries were just awesome circa 2008-09 for those who aren’t mega-donors to Republican politicians.

I’ve hardly been quiet here at AB about my lack of fondness for Clinton, including in posts earlier today and just before the debate last night.  But some of the criticism of her is ridiculous.

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Why Do So Many Wealthy Democrats Think The Only Money That Matters To The Hoi Polloi Is The Money They Must Pay To The Government? [with update]

Second, single-payer would require a lot of additional tax revenue — and we would be talking about taxes on the middle class, not just the wealthy. It’s true that higher taxes would be offset by a sharp reduction or even elimination of private insurance premiums, but it would be difficult to make that case to the broad public, especially given the chorus of misinformation you know would dominate the airwaves.

Finally, and I suspect most important, switching to single-payer would impose a lot of disruption on tens of millions of families who currently have good coverage through their employers. You might say that they would end up just as well off, and it might well be true for most people — although not those with especially good policies. But getting voters to believe that would be a very steep climb.

Health Reform Realities, Paul Krugman arguing today in his New York Times column against attempts to enact single-payer, Medicare-for-all healthcare insurance

Good grace.  Where to begin.

Maybe by quoting myself with this excerpt from my post from yesterday, posted before the debate began:

Having no healthcare insurance is not the same as having healthcare insurance.  Unless of course the medical care you need is not covered by the insurance you have, because the deductibles and co-pays under your employer-provided insurance or under the policy you bought through a state marketplace under Obamacare for a premium low enough that your employer or you could afford it, means (unlike more comprehensive plans that others have but you do not) that you must pay those medical bills yourself.

Apparently, Chelsea Clinton doesn’t get out much these days.*

But then, neither, it appears, does her mother, who has claimed repeatedly, including in comments in defense of her daughter’s odd statements about Sanders’ single-payer concept, that the only expenses—the only money people pay—that actually matters to them is money paid to the government.

No other expenses count as money—as loss of income or as other expenditure that actually effects your and your family’s financial bottom line and therefore standard of living.  Money paid to UnitedHealthcare or Anthem Blue Cross in premiums, and to hospitals, physicians and medical labs in co-pays and deductibles, don’t count.  That’s not money paid to the government, see.  So it’s wayyy better to pay more for less-comprehensive coverage to private insurance companies, and still be financially insecure about medical expenses, than to pay less money in healthcare costs to the government and be financially secure about medical expenses.  Because, y’know … the government.

Which—I wish Sanders would point out—is exactly what Clinton says.  Again and again. Just like the Republicans do.

Hillary Clinton should get out more, too.

Sanders did almost exactly that in the debate last night.  But I hope, especially in light of Krugman’s column today, that he points out that the Democratic politicians and commentators who say the public thinks that the only money that matters to their financial bottom line, the only expenses that effect their standard of living, is taxes. Or that the math involved to understand that that is not so is too complicated for most folks to perform.

Calculators are cheap these days.  Even the hoi polloi can afford one.

Sanders got it right last night.  This is the Republican mantra.  And it’s no longer selling so well.

But Sanders also should question why it is that the Clintons and now Krugman, and surely other wealthy Democrats, think (or claim to think) that large and annually increasing healthcare premiums and co-pays and deductibles don’t matter to middle class and so-called working class folk because they’re paid to private insurance companies and private hospitals, physicians and medical labs. Sanders’ next ad should feature one of those folk saying that his or her family’s healthcare insurance premiums and the four-figure medical bills they are paying for a short hospital stay are actual money.  Honestly and truly.

Another ad should show a small-business owner discussing the amount the business pays in premiums for private insurance for its employees and that paying less to the government in additional taxes than the amount it is paying for private insurance could be paid instead in increased salaries and wages.

And there should be a third ad, maybe featuring that very same small-business owner, explaining that the business has a few employees who are seniors and receive, um, Medicare—and that the business pays for their excellent Medicare supplement insurance.  Not complicated.  And not very costly, given that Medicare is—yes, really—itself good insurance. So … voila! Hard feelings by those employees because they aren’t part of the awesome UnitedHealthcare plan that the younger-than-65 employees have and love.

Okay, look.  Only people who are, like the Clintons and Krugman, financially way-more-than-comfortable would actually think that people who aren’t don’t care how much they pay in healthcare premiums and out-of-pocket medical expenses because the checks are made out not to the federal government but instead to private entities and parties.  And that only the most sophisticated among the rest of us will understand that Medicare combined with platinum plated supplemental policies paid by their employer will give them the same awesome benefits that they receive now.  Maybe even better.  Even though it will cost the employer less money.  (Less real money.  Really!)

The Clinton claims and Krugman arguments are profoundly elitist.  They’re spades that should be called, by Sanders, what they are: spades.

Krugman, too, should get out more.

*Chelsea Clinton said last week that she doesn’t “want to live in a country that has an unequal health care system again.”  As I said in my post yesterday, she apparently wants to move to France.  Or Canada.  Or Scandinavia, or Germany, or Thailand.  Or one of the many other Western-style democracies that has an equal health care system.

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UPDATE: Reader Lee Russ has posted this comment to the Comments thread:

Krugman’s assessment leaves out one extremely important reality and understates a second.

He left out the reality that his approach is a surrender to the power of the health insurance industry that, as he says, “played a major part in killing health reform in the early 1990s.” As he also says, Obamacare was specifically designed to rely on private insurance to keep those insurers from killing it. Now Krugman recommends walking away from a national healthcare system that even he acknowledges is both better and less expensive than Obamacare, again in deference to the insurance industry’s desires. Allowing the insurance industry to control our lives and our health is not practicality, it is an abandonment of our
rights in a democracy and it is a very big mistake.

Krugman also understates the problems that Obamacare is causing out here in “reality.” Expanding Medicaid has helped the poorest of us get some care, but that program’s low reimbursement rates mean that many doctors decline to treat Medicaid patients. The doctors who do take Medicaid are swamped by the newly Medicaid eligible, and may lose money treating them.

For many people who buy insurance policies through the exchange, massive deductibles must be paid before the insurer pays anything. Doctors across the country have noted the increase in the number of “insured” patients who are having serious problems figuring out how to both eat and pay their deductibles. Krugman wrongly says that “access to health insurance for all Americans” has been the goal. It’s access to health care—not to insurance—that matters. Obamacare too often fails to achieve it.

Exactly.

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The Single Payer Plan to Save Healthcare in the US

What I do not see on AB is Bernie’s Plan. Take a moment and read what his plan is before you comment. If you read the plan, you will see Bernie subsidizes the expansion of single payer based on taxes on all households, separate taxes on the rich in income and also capital, the elimination of tax subsidies to healthcare companies, taxes on inheritance, the elimination of the income subsidy to people for ESI (this is also a tax break for companies), etc. Other than a few sentences on the issue, Bernie does not address ho he is going to control rising healthcare costs (other than eliminate healthcare insurance which is not the cost driver). He does not address it in his “How Much Will It Cost and How Do We Pay For It?.”

Ezra Klein comments on the reality of Bernie’s plan “individuals will have to fight with the government rather than private insurers when their claims are denied”. Ezra adds;

“But the implication to most people, I think, is that claim denials will be a thing of the past — a statement that belies the fights patients have every day with public insurers like Medicare and Medicaid, to say nothing of the fights that go on in the Canadian, German, or British health-care systems.

What makes that so irresponsible is that it stands in flagrant contradiction to the way single-payer plans actually work — and the way Sanders’s plan will have to work if its numbers are going to add up.”

Bernie tells you how much healthcare costs today, how much it will cost in the future, and what the price tag will be in taxes, etc. Bernie superficially glances at what also needs to be done in one paragraph of a couple of sentences and never really touches upon the real issue of rising healthcare costs. The progressives and the liberals skewered Pres Obama for giving in to healthcare companies, insurance companies, and having them participate in writing the PPACA, etc. Insurance companies are more efficient in writing plans as they have the experience and what was the issue was Congress.

Yet, here we see Bernie giving in to the same issues and sidestepping one important one. We will benefit from single payer, there will be savings and efficiencies galore, more people will be covered and everything will be “almost rosy.” The one thing Bernie does not say and exists in every other single payer plan is; “those promises can only come true if the government starts saying no quite a lot — in ways that will make people very, very angry.”

Something I have said time and time again as I have written about the PPACA and defended it is the savings must come through cutting healthcare costs by attacking the industry increases. Healthcare insurance is a reflection of the increases and are passed through. Just saying “single payer” as many people think does not lower costs and Bernie sidesteps it. Ezra Klein goes on; “The real way single-payer systems save money isn’t through cutting administrative costs. It’s through cutting reimbursements to doctors, hospitals, drug companies, and device companies.” Ezra is right when he says Bernie “gestures towards this truth;” but, the gesture is hidden away in two sentences and not given the emphasis it deserves under “How Much Will It Cost and How Do We Pay For It?.”

Another expert I have talked to for years and has presented these issues too, said this:

“Reform is a process and not an event–and the process is happening.By about 2020 I think we will see results that will begin to make you & I (not to mention folks like Elliot Fisher, Don Berwick, Diane Meier, etc. happy).

Medicare is beginning to negotiate better pricing (paying hospitals and docs for value, to volume) and in 2-3 years it will refuse to pay for many overpriced drugs. (This will make many Americans angry. They think they should have any drug that they think they need–or that their doctor tells them they need (even though their doc hasn’t read any medical research in 15 years) and that the rest of us should pay for it. . But eventually, people will adjust.

As for Single Payer parrots–just ignore them. They are clueless, can’t face numbers or facts, and think that there is a simple solution to our tremendously complex healthcare problems. They also know little about history or what is happening (and has happened) in other countries. They live in their own little world. If I sound exasperated, I am. Bernie Sanders, in particular, represents soft-headed liberalism at its worst.”

There is truth to the preceding statement and Ezra Klein’s, both of whom know each other and say pretty much the same on single payer. Just saying “single payer” is not a cure-all for everything which ails us politically and medically. There are going to be times when a government run Single Payer will not pay for some operation or medicine due to it being unproven, a low success rate, etc. and simply cost. True Single Payer, the type many of us will not want, will say no to doctors, hospitals,and the healthcare industry. Single payer will provide the the type of healthcare needed by most of the country with few exceptions; but, you will find yourself in the same discussions with the program as you did with your insurance company.

I found this article by Matt Bruenig over in the links at Naked Capitalism, “How To Use Single Payer Healthcare As Trojan Horse For A Good Welfare State.” Step past the title and read what he has to say about taxation and cutting costs.

“Under this scenario, we would initially raise the tax level by 8.5 points in order to cover the half of health expenditures that are currently paid out privately. Then, over time, we would cut healthcare expenditures by 7 points (from 17% to 10% of GDP). Assuming we didn’t lower the tax level over the expenditure-slimming period, we would be able to use those 7 points of savings towards other welfare programs (child care, child allowance, paid leave, etc.). And there is a lot of stuff you can get with 7 points of GDP.”

It is a sensible argument; but, I doubt our Congress would go forward with the 2nd and 3rd sentence. I am sure these funds would end up in the GF and used to fund tax breaks. Isn’t this where we started out, a Congress which is not responsive to what its constituents really need?

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Commentary on Commentary on Sanders’s Single Payer National Health Insurance Proposal

Bernie Sanders has proposed a federal national health insurance system which will provide no-deductible no copay insurance to all US legal residents.

Needless to say, this will be expensive. Amazingly, Sanders focused on what taxes he proposes be increased to pay for the program.

Kevin Drum is very favorably impressed by the (relatively) honest budgeting

“Bernie Sanders Releases Outline of Universal Health Care Plan—And It’s Pretty Good”

Drum also summarizes the plan very briefly and clearly

Here are his basic claims:

He will raise $630 billion by increasing the employer part of the payroll tax by 6.2 percent.
He will raise $220 billion via a 2.2 percent progressive income tax on everyone (he calls it a “premium”).
He will raise $548 billion in various taxes on the rich along with the end of current tax breaks that subsidize health care
That’s a total of $1.4 trillion
Current public spending on health care (mostly Medicare and Medicaid) runs around $1.2 trillion.
This means that Sanders is figuring that under his plan total national health care spending will be about $2.6 trillion.
This is considerably less than the $3 trillion we spend now, and Sanders also says that his plan will keep spending growth down. This accounts for his claim that his plan will reduce total national spending on health care by $6 trillion over ten years.

So is this credible? It’s close. His taxes will probably raise about what he says. I’m not sure that he can reduce spending as dramatically as he hopes, but he can probably reduce it some. In other words, his sums might not add up perfectly, but they’re pretty close.

I am going to discuss the taxes.

Ezra Klein (who is very expert on health care financing) is not impressed

“It’s everything critics fear a single payer plan would be, and it lacks the kind of engagement with the problems of single-payer health systems necessary to win over skeptics.”

I strongly disagree with one of Klein’s arguments. Klein objects to Sanders’s reliance on higher taxes on high income and on capital income.

The rest of the financing would come through a raft of new taxes on the rich. Sanders would raise marginal rates on income over $250,000, he would raise the tax rate on capital gains and dividend income, he would hike the estate tax, and he would close sundry deductions and loopholes.

In general, I’m comfortable with higher taxes on the rich — though they’ve risen substantially in the Obama era already — but tax increases of the scale Sanders proposes here would begin to have real economic drawbacks. European countries tend to pay for their health-care systems through more broad-based, economically efficient taxes like VATs; Sanders’s effort to fund a universal health-care system so heavily on the backs of the wealthy would be unprecedented.

Klein really wants to discuss the insurance providing side of the plan not the taxes — the argument which I contest is tossed off. But it’s there in pixels and I will take it seriously.

I think the second paragraph is nonsense. Klein presents no historical evidence supporting his claim that the taxes Sanders proposed would have real economic drawbacks. The reason is that there is no such evidence. His argument is that European countries don’t do that (although in fact European income tax rates are high — the VAT is in addition to high income taxes). This isn’t an argument. It is based on the assumption that average European policy is optimal. I personally find this very irritating as the argument is very common in Italy where reverse nationalism means that if it is noted that Italian policy differs from the European average it is just assumed that everyone must agree that Italian policy should be changed.

Notably European economic performance must make reasonable people doubt European policy makers’ understanding of what is “economically efficient.” What is the argument that a VAT is economically efficient ?

Here I assert that an important part of the support for that view comes from people who equate regressive with efficient — who assume that redistribution from people with high income to people with low income is economically inefficient. This is based partly on an absurd definition of “economic efficiency” in which it is just assumed that the welfare of the rich is more important than the welfare of the non rich (I am not exaggerating google “Money metric welfare”). But it is also based on confident assertions on matters of fact which are not supported by the evidence. It is certainly *not* true that simple growth regressions suggest any “real economic drawbacks” of the marginal tax rates proposed by Sanders.

The official argument for a VAT is that, by taxing consumption not income it encourages saving. Now it just so happens that one of my PhD supervisor’s obsessions was on how to increase saving rates. Now he is obsessed with the risk if secular stagnation. Top economists are now arguing that a high tendency to save causes stagnation and instability. Yet the argument that policy should encourage saving is not affected at all. This reminds me of the way in which the great recession had only a brief and limited effect on hatred of budget deficits. Rich countries have had slack demand and a liquidity trap for 7 years now. It’s time people considered whether this is relevant to the debate on taxes and tax incentives.

Ezra Klein is better than this. I will now try to psychoanalyze the paragraph. First I think that Klein has a serious case of Europhilia — to him the fact that European countries didn’t do this implies that it shouldn’t be done.

Second I think he has internalized the political constraints. Such tax increases are outside the inside the beltway Overton window. But so, at the moment, is single payer. Any serious attempt to introduce a VAT would immediately reveal that it is politically impossible. “Soak the rich” is popular populism. “Soak the old” is political suicide. Large tax increases on high incomes might be politically possible some day. I don’t think a VAT tax ever will be.

Third I have to expect he hopes to have a lot of influence on the Clinton administration (if not a job with them). I sure hope so. If this requires a little bit of breazy dismissal of progressive taxation which won’t be enacted anyway, it’s fine by me.

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Should We Be Surprised by Slow US GDP Growth ?

I am fairly sure it is a coincidence, but current US GDP is not disappointingly low compared to an almost incredibly crude forecast based on data from before 1990.

This graph (which you have to click more to see) shows the natural log of US real GDP and a quadratic trend estimated using data from before 1990

quadratictrend

According to this graph, current GDP is not anomalously low. Rather GDP in the 90s and 00s was anomalously high. I am almost tempted to take it seriously, because, with the benefit of hindsight, it seems that GDP was driven up by the dot.com and housing bubbles during those periods.

If taken literally, the trend implies that GDP growth declines by -0.029 percent per year per year.

I was interested in the extent to which deviations from quadratic trends estimated with pre 1990 data might be useful when forecasting. I don’t have any particular conclusion

Here is a crude regression

quadrinv

linvr is log real investment minus a quadratic trend estimated with pre 1990 data
lconsr is log real consumption minus a quadratic trend estimated with pre 1990 data
the dependent variable d4linvr is linvr minus linvr lagged one year
l4linvr is linvr lagged one year
l8linvr is linvr lagged two years
l4lconsr is lconsr lagged one year
l8lconsr is lconsr lagged two years

The coefficients were estimated with overlapping 4 quarter intervals, so the standard errors were corrected for serial correlation.

Based on this regression it is possible to forecast the change in real investment out of sample giving forecasts pd4linvr .

The regression suggests that investment reverts towards the quadratic trend and also that high growth of consumption is followed by high growth of investment.

Using only post 1990 out of sample data, the forecasts are significantly correlated with actual changes in real investment

quadrinvout

Here is the scatter of out of sample forecasts and outcomes

quadrinvgph

Note that the scales are different.

I don’t think I have to type that I tried this first with the annual change in log GDP as the dependent variable. That gave similar results within the pre 1990 sample, but the out of sample forecast growth rates weren’t singnificantly correlated with the out of sample actual growth rates.

I’m not sure what to make of my empirical work with 1960s era econometric techniques. I do find the suggestion that investment is strongly mean reverting (as in related to bubbles which burst) highly plausible.

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