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

Medicare and Social Security reductions?

AARP notes a planned reduction in Medicare funding.  I have not hear much from them as in times past.

If you read through the umpteen pages of the Senate tax bill, you won’t find a clause that says it dramatically cuts Medicare spending. But the effect of the legislation being debated this week would be to slash up to $25 billion from the health program in 2018 and possibly more in the future.

That’s because the tax measure would prompt the “pay-as-you-go” law, commonly referred to as PAYGO. The law was designed to keep the deficit in check by requiring the administration to institute spending cuts in many mandatory federal programs if Congress passes any measure that increases the deficit but doesn’t include offsetting revenues.

The Senate tax proposal would add $1.5 trillion to the federal deficit over the next 10 years. Under PAYGO, if this bill were to become law, the government would have to lop off $150 billion in spending every year for 10 years.
Medicaid, Social Security, food stamps and other social safety net programs are exempt from the PAYGO law, which went into effect in 2010. But Medicare and other programs — such as federal student loans, agricultural subsidies and the operations of the Customs and Border Patrol — are not exempt.
The law caps how much the government can trim from Medicare at 4 percent. That’s $25 billion the first year, according to a report by the nonpartisan Congressional Budget Office. The annual amount could increase in subsequent years depending on the size of the deficit and Medicare’s budget.
The $25 billion reduction would affect the payments that doctors, hospitals and other health care providers receive for treating Medicare patients. Individual benefits would not change and neither would premiums, deductibles or copays. But with so much less money going to providers, the cuts could have major impacts on patient access to health care — such as fewer physicians accepting Medicare patients.
“We’re deeply concerned that the tax proposals being made will very directly affect the ability of Medicare to maintain services, and we do not think it is fair that older Americans who have paid into Medicare their entire working lives get stuck with the bill for a tax overhaul,” says Cristina Martin Firvida, AARP director of financial security.

Bruce Bartlett predicts that as soon as the tax bill is passed the deficit hawks will rise again.

Be prepared for an onslaught of reports from Republican “deficit hawks” the second the tax bill passes, demanding immediate action to slash SS & Medicare b/c the deficit suddenly & mysteriously got much, much worse. But no taxes or defense cuts, period.

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Cryptocurrencies: Future or bubble?

Brian Down from Focus Economics was looking for a response on cryptocurrencies…could make an interesting thread!

I’m emailing you today because I am putting together a piece on cryptocurrencies and it would be great to get a comment from you on the subject.

While some believe that cryptocurrencies are the future, the prevailing view appears to be that cryptos are nothing more than the 21st century version of Tulip Mania. Despite this prevailing view, central banks appear to be exploring blockchain with a view to creating their own digital currencies. If you can’t beat ‘em, join ‘em, so to speak.

With that said, I’d like to get your view of the future regarding crypto/digital currencies. If you’re interested, you can answer my questions below or just give me your general view.

  1. Could cryptocurrencies supplant traditional currencies or are alternative currencies a bubble that will eventually burst?

  2. Could a central bank really issue its own digital currency in the near future? How could this affect the world economy and financial markets?

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Healthcare Costs and Waste

Propublica has a story on waste in the medical industry:

Experts estimate the U.S. health care system wastes $765 billion annually — about a quarter of all the money that’s spent. Of that, an estimated $210 billion goes to unnecessary or needlessly expensive care, according to a 2012 report by the National Academy of Medicine

Having visited doctors in the past decade or two a few times, I can believe the 25% figure.  The billing structure alone creates massive amounts of waste.  But some see Propublica as overly liberal, so why not check their figures?   followed the links to the National Academies of Science, Engineering and Medicine and clicked on this slideshow from 2012. Slide seven was particularly interesting. It included the following bullet points:

• Health care costs constitute 18% of U.S. GDP
• 30% increase in personal income over the past decade effectively
eliminated by a 76% increase in health care costs
• $750B in waste

Now, in 2012, the year the report was published, GDP was $16.16 trillion. If healthcare spending was 18% of that, it amounted to about $2.91 trillion. And $750B, the amounted wasted is a bit more than 25%.  Which is to say, Propublica’s numbers are in line with the National Academy’s numbers from 2012.

Which raises a question…  wasn’t the point of not moving to a single payer regime that the private sector would eliminate waste such as this?

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A Message for GOP Senators Undecided on Tax Bill

I read with great hope that the junior senator from Kansas has learned from the Kansan tax cut disaster and will, maybe, possibly, have enough courage to vote against the horrible Republican tax cut for our Donors bill. I have a message for Republicans who know better, but are afraid of breaking with the president and majority leader.

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I am so thankful that I am an economic blogger

I am so thankful that I am an economic blogger

A few days late for Thanksgiving, but … like a lot of people, I woke up to a real nightmare one year ago.  One decision I made for mental health purposes was to focus like a laser beam on the economy rather than have my blood boil over each day by each new atrocity.
In the last few months it has occurred to me over and over to be extremely thankful that I am writing about the one aspect of America that isn’t going straight to hell.

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Macroeconomic policy and exchange rate regimes under global financial integration

by Biagio Bossone (Biagio BOSSONE is an Italian national,  currently advises international financial organizations on financial sector development issues and technical assistance programs in several countries in Africa, Asia and the Pacific, Latin America, and Northern Africa and the Middle East. He is a consultant to private-sector organizations. He has taught at various universities in Italy.)



Macroeconomic policy and exchange rate regimes  under global  financial integration

I want to come back to the post I wrote recently on Angry Bear, regarding the power of exchange rates to insulate economies from shocks and to grant independence to economic policy action, with the purpose to derive some clear (and testable) propositions.

For the benefit of readers, let me explain that my previous post originated from Antonio Fatas’ challenge to conventional wisdom whereby sudden stops – or the abrupt reductions in net capital inflows caused by crisis confidence – are relevant only for countries with fixed exchange rates, whereas they are not much of a concern for countries that have their own currencies. An interesting yet non-conclusive controversy followed, with positions ranging from that expressed by Paul Krugman, who holds that the adjustment mechanism to a confidence crisis varies with the underlying exchange rate regime (i.e., it is contractionary under fixed rates and expansionary under floating) to Andrew Rose’s observation that the economic performance of ‘fixers’ versus ‘floaters’ has not been dissimilar since 2007, going through Brad DeLong’s claim that under extraordinary dysfunction (not just a change in market views of the long-term fundamental value of the currency), exchange-rate depreciation no longer yields expansionary effects.

In my post, I argued that the dysfunction need not be as extreme as DeLong claims, and that the effectiveness of floating rates depends ultimately on how financial markets evaluate the sustainability of an economy’s public liabilities (both money and debt) against its macro policy framework. As my arguments go, even with floating, a largely indebted and financially integrated country suffering from poor credibility in the eyes of the markets would find its policy space severely constrained by the need to protect its liabilities from the risk of future (internal and external) value losses, as determined by the market response to its policy stance. If the country was in recession or secular stagnation and intended to recover output and employment gaps through active demand management, markets might undermine the country’s good intentions and bring it back on its policy decisions, under the threat of sudden stops and capital flights. The exchange rate is, therefore, a ‘veil’: markets see the economy’s risks through it, and are indifferent to the underlying exchange rate regime.

The key variables determining the latitude of the policy space available to an economy wanting to exploit the ‘insulating’ and ‘independence’ power of floating exchange rates are: i) the economy’s stock of (debt and money) liabilities, ii) its level of credibility in the markets’ judgment (whether the judgment is right or wrong is another matter), and iii) its degree of integration in the global financial markets. Thus,

Proposition I

The policy space available to a country that is fully financially integrated into the global markets, and operates under a floating exchange rate regime, grows narrower with the economy’s stock of liabilities and is limited by the country’s market reputation as a debtor.

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Tolerance And Terrorism In Saudi Arabia

Tolerance And Terrorism In Saudi Arabia

On the one hand this past week, Thomas Friedman at the New York Times has written a praising column about Crown Prince Muhammed bin Salman (MbS). He is going to bring a new “wave of tolerance” into Saudi Arabia, along with more generally modernizing it. This claim is not totally without substance given his setting up for women to drive starting next June as well as letting them go to sports events with men and also curbing some of the excesses of the Mutaween, the religious police. It is not clear what further liberalizations are in order, but Friedman assures they are coming. A newly tolerant Saudi Arabia is on our doorstep, whoopee!

OTOH, it has since been announced that MbS is overseeing a rewriting of the criminal code of the Kingdom of Saudi Arabia (KSA). A major part of this rewriting is to help the government combat terrorism, with the death penalty available for helping to aid in this. Just as we all oppose corruption, which MbS fought by arresting 201 people, many of whom also seem to have been potential political rivals or critics, we all oppose terrorism. But just as with corruption, terrorism can be stretched to mean many things. And indeed, it turns out that one of the items appearing in the new criminal code is that criticizing the king is an act of terrorism, punishable by death. This is how one has tolerance while fighting terrorism at the same time in the new Saudi Arabia, whoopee!

Barkley Rosser

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