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The Public Learns Disaster Relief Was Etched Out of the Sketch. Uh-Oh.

MITT ROMNEY: “Every time you have an occasion to take something from the federal government and send it back to the states, that’s the right direction. And if you can go even further, and send it back to the private sector, that’s even better. Instead of thinking, in the federal budget, what we should cut, we should ask the opposite question, what should we keep?”

DEBATE MODERATOR JOHN KING: Including disaster relief, though?”

ROMNEY: We cannot — we cannot afford to do those things without jeopardizing the future for our kids. It is simply immoral, in my view, for us to continue to rack up larger and larger debts and pass them on to our kids, knowing full well that we’ll all be dead and gone before it’s paid off. It makes no sense at all.

Republican primary campaign debate last year

Slate’s Matthew Yglesias points to that today andcomments:

More prosaically, though the Romney campaign was understandably circumspect over the weekend about his spending plans the fact is that his overall budget requires sharp cuts in everything. The central issue is that Romney wants to cap government spending at 20 percent of GDP while boosting military spending to 4 percent of GDP and leaving Social Security harmless. That means a 34 percent across-the-board cut in other programs according to the Center on Budget and Policy Priorities. Unless, that is, Medicare is also exempted from the cuts in which case you’d need a 53 percent cut. …

If a storm damages basic physical infrastructure (power lines, bridges) and imperils human life it would be the height of penny-wise, pound-foolish thinking to suppose that the afflicted area should wait months or years to repair the damage. Ultimately, anyplace is going to go back to robust wealth creation faster if basic stuff gets fixed up faster. But that requires financing by an entity capable of rapidly financing expensive projects—i.e., the federal government. Left to its own devices a storm-ravaged Delaware or Louisiana is going to be squeezed between balanced budget rules and falling sales tax receipts and be forced into an increasing state of dilapidation.

How about a storm-ravaged Florida?  According to current polls, slightly more than half of Florida voters want their state to take over disaster relief, at least until arrangements can be made for the private sector to take it over.

And, about that question Romney asked: What should we KEEP?  Well, in addition to the Bush tax cuts for the wealthy and defense spending for private contractors, what DOES Romney think we should keep?

We cannot – we cannot afford to do things like disaster relief without jeopardizing the future of our kids.  We CAN, though, afford to give massive additional tax cuts to the wealthy, and huge additional contracts to Republican defense contractors, without jeopardizing the future of our kids.  Right?

What’s truly unconscionable is that it’s taking Hurricane Sandy to educate the public about the plans Romney and Ryan have stated so clearly.  I’ve been utterly unable to understand why the Obama campaign hasn’t been running video clips of Romney’s primary-campaign statements as the foundation of their ads.  I’ve thought all along that this is all Obama would need to do in order to win.  I think Sandy will prove me right.

And, here’s a shout-out to New York Time columnist Bill Keller for exposing for the absurd myth that it is the punditry’s “in” refrain that we don’t know what either of the two candidates would use the office to do in the next four years, because, well, neither has specified sufficiently.  As Keller says, actually both have specified sufficiently. 

And Romney’s already begun to reverse-sketch his etchings.  Suffice it to say that he’s not spent the last week promising “BIG CHANGE” because he plans to etch out of his sketch all those primary-campaign promises. 

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Yglesias Misses the Point. Again. [with correction]

Rules requiring firms to restrict employment to their country of origin would be hideously inefficient if applied on a global basis, and they would be every bit as devastating to American employees of foreign firms as offshoring by American firms is to workers who lose their jobs here. (One might also ask where the borders of corporate patriotism ought to be. If it’s wrong for a Michigan-based car company to have a supply chain that extends to Mexico, why is Ohio OK? After all, it hardly makes a difference to a laid-off worker where exactly his job went—the bad news is that he lost his job.)

Over the long run, we’re all going to be more prosperous if we live in a world where firms are allowed to locate work where it’s most efficient to locate it. This is exactly why, despite some tough ads, the Obama administration has not proposed any policies to restrict firms’ freedom to shift work across state or national boundaries.

Romney’s unwillingness to make the case for outsourcing reflects, in part, political timidity. But more broadly, it underscores that although he’s been an eager participant in contemporary capitalism, he’s not willing to mount a policy response to its vicissitudes.

Offshoring Is Fine. Why won’t Mitt Romney defend Bain’s record?Matthew Yglesias, Slate, yesterday afternoon.

It’s surely true that rules requiring firms to restrict employment to their country of origin would be hideously inefficient if applied on a global basis, and they would be every bit as devastating to American employees of foreign firms as offshoring by American firms is to workers who lose their jobs here.

But, to my knowledge, the only one who’s equated the absence of* government policy (of necessity on this issue, statutes) that would restrict corporate employment to the country of the corporation’s origin, and a private equity firm’s investment in companies that specialize in assisting American corporations with offshoring employment, is Yglesias.  Even Romney apparently recognizes the distinction. Not sure why Yglesias doesn’t.

It’s one thing to argue that utterly unfettered globalization of employment by corporations worldwide ultimately has a positive effect on the American economy—as Yglesias does. But it’s another thing entirely to actually convince a majority of the public that this is so even in light of current trends and actual facts. 

And it’s one thing to argue that laws that forbid companies from relocating jobs from the company’s home country to another one would have a negative side to it because of possible retaliatory laws in other countries, and another thing to equate that with decisions by corporations themselves about whether to offshore or not. (And, setting aside the obvious constitutional bar to prohibiting a corporation’s relocation of jobs from one state to another, it’s a lot easier for families to relocate from Michigan to Ohio than from Michigan to Mexico.)

The thing that Yglesias doesn’t get is that Romney’s claiming that his private-sector career demonstrates his ability to create not just wealth for investors but jobs en masse for the public. There’s really no way for him to make that claim persuasively, because it plainly isn’t true. He can defend offshoring as a corporate strategy, but corporate strategy is a different matter than economic strategy.

Unless, of course, Romney wants to argue that encouraging offshoring by American corporations is good government policy. Hope he does.  But then, I’m a Democrat.

*Sentence corrected to insert the words “the absence of”.

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Matthew Yglesias, Slate’s Boy With a Little Curl

Lost in the shuffle here is the question of what it is Romney is denying he’s responsible for. Stipulate that Romney somehow had nothing to do with running a company of which he was the CEO and sole shareholder. Does he think, in retrospect, that his subordinates did something wrong by offshoring jobs? Clearly he didn’t, which highlights the absurdity of his claims not to have been responsible. It’s true that he wasn’t running the country [sic] on a day-to-day basis, but he really was titular CEO and had Bain been doing something he deemed outrageous he could and should have stepped in to stop them. But he doesn’t believe that. And what’s more, all indications are that Barack Obama also doesn’t think Bain was doing anything wrong. [Emphasis in original.] As president he’s made no moves to make it illegal for companies to shift production work abroad and has publicly associated himself with a wide range of American firms—from GE to Apple and beyond—who’ve done just that to varying extents. And we all remember what happened to Obama’s promise to renegotiate NAFTA after taking office, right?

In my view both Obama and Romney are quite right about this. I’ll say more on this during the workweek, but one quick test is do you think there’s something immoral about the fact that Toyota and BMW have manufacturing facilities located in the United States? Should the Japanese and German governments be stopping Japan- and Germany-based firms from locating production offshore?

I posted a comment to it, saying:

Well, when Obama starts claiming that one of his key qualifications for reelection is that he’s helped create jobs in China—or when Romney starts saying that Bain invested in companies that specialized in moving jobs overseas in exchange for promises by German and Japanese companies to open, or keep, factories in this country—Yglesias’s equivalency argument might be less ridiculous. 

One of Obama’s spot-on arguments against Romney’s claim that his Bain experience was a successful jobs-creation experience rather than merely a successful wealth-creation-for-investors experience is that there’s a huge difference between experience in creating wealth for private investors, by any means available and at whatever expense to others, and creating good for the country’s overall economy and general welfare.  This offshoring issue is a classic case in point. Setting aside whether the federal government has the legal authority to prohibit private companies from offshoring—and I don’t think the government has any such legal authority, except in certain limited national security or foreign policy circumstances—there’s an obvious critical difference between not trying to stop this country’s companies from offshoring, for fear of retribution by other countries’ companies, similar to trying to avoid a tariff war, and aggressively aiding offshoring by American companies irrespective of any up-side for the general American economy. 

Add to that that, as several other commenters have pointed out, the German and Japanese companies that offshore in this country do so mainly in manufacturing products or parts for products that will be sold in North America, mostly in this country.  GM, Ford, Chrysler and some U.S. auto-components manufacturing companies have factories in Europe, but the products and components made there are sold in Europe.  Like the German and Japanese auto companies that Yglesias equates with Bain’s offshoring-specialist companies, the American auto-industry companies continue to make the parts and cars sold in their home country in factories in their home country. 

Which, of course, would not be the case any longer had the Bush and Obama administrations taken Romney’s advice and let Detroit fail.

That said—and for the same reasons—Yglesias is wrong in saying that unless Romney thinks there’s something wrong with offshoring, it’s absurd for him to deny responsibility for Bain’s investments in offshoring-specialist companies during the three-year period beginning in early 1999.  If in fact Romney was no longer associated with Bain during that period, he would have every right to correct the record, whether or not he thinks there was anything wrong with what Bain did during that time.  But the question of whether Bain did anything wrong in investing in offshoring-specialist companies—during the period between 1993 and 1999, when (at least as I understand it) it apparently was doing so at Romney’s clear behest, or during the following three years—depends on what is meant by “wrong.” 

It was not illegal.  But many voters think that, while it clearly was helpful to Bain’s investors and to Romney (who has continued since then to receive large payments from Bain), it was not helpful to the larger American economy and to the middle class.  It did not create jobs in this country; instead, it eliminated them.  And Romney is running for president virtually entirely on his claimed credential of being a jobs creator and of knowing how to create jobs—in America.

I’m hesitant to be too critical of Yglesias for his rather obvious conflations here.  He was, after all, not just the first pundit but also one of the very few even yet to point out a stunning, absolutely jaw-droppingproposition of law stated by four of the nine Supreme Court justices in their joint dissent late last month in the Affordable Care Act case, the part of the dissent concerning the issue of the severability of the part of the Medicaid provision in the Act that the Court’s majority struck down, in which the dissenters, while claiming that the majority was rewriting the Medicaid provision in order to save much of it, wanted to rewrite, rather dramatically, the Constitution’s separation of powers between Congress and the Court. Only four hours after the release of the opinion, when almost no one except the journalists covering the Court had yet read the dissent, Yglesias wrote:

As I’ve noticed previously, there’s lots of other stuff in the Affordable Care Act besides the new regulation of insurance companies, including a move to deregulate dental services. So I was curious to see why the dissenters in the Supreme Court thought that not only was the individual mandate and the provisions related to the individual mandate unconstitutional, but also all this other stuff.

The answer is that they appear to have made up a new Christmas Tree Doctrine under which legitimate acts of Congress are held null and void if Antonin Scalia thinks they were part of some kind of unseemly horse-trading:

Some provisions, such as requiring chain restaurants to display nutritional content, appear likely to operate as Congress intended, but they fail the second test for severability. There is no reason to believe that Congress would have enacted them independently. The Court has not previously had occasion to consider severability in the context of an omnibus enactment like the ACA, which includes not only many provisions that are ancillary to its central provisions but also many that are entirely unrelated—hitched on because it was a quick way to get them passed despite opposition, or because their proponents could exact their enactment as the quid pro quo for their needed support. When we are confronted with such a so called “Christmas tree,” a law to which many nongermane ornaments have been attached, we think the proper rule must be that when the tree no longer exists the ornaments are superfluous. We have no reliable basis for knowing which pieces of the Act would have passed on their own. It is certain that many of them would not have, and it is not a proper function of this Court to guess which.

That all seems fine except I would have thought it was the prelude to the opposite ruling. It’s not the proper function of the court to guess why different provisions were enacted, just to rule on the constitutionality of laws. Since there’s plainly no constitutional problem with regulating interstate chain restaurants, the law is the law until Congress repeals the law. Instead, Justices Scalia, Alito, Kennedy, and Thomas have decided that rather than pick and choose it would be better to strike everything.

This is far, far more newsworthy than the teensy bit of attention it has received suggests.  Four Supreme Court justices think legislative logrolling is improper and that therefore the Court can strike down full pieces of legislation that a majority of justices don’t like whenever they decide that some provision, however small, in the full piece of legislation is unconstitutional.  After all, y’know, maybe the rest of the legislation would not have been enacted without the quid pro quo votes.  Presumably, this also would apply to state laws as well as to federal laws—but, of course, as with federal laws, only to laws that the conservatives don’t like.

I’d been meaning to write about this truly radical part of the dissent in the ACA case, but hadn’t gotten around to it.  Now I have.

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Does Uncompensated Care Raise Prices for the Insured?

Lifted from Robert’s Stochastic Thoughts comes this comment on Matt Yglesias:

by Robert Waldmann

Matthew Yglesias asks  (Does Uncompensated Care Raise Prices for the Insured?)


. I am having trouble with moneybox comments so I comment here. OK first I have to note that a philosophy concentrator half my age is doing pretty well to make me think about economics. Yglesias’s willingness to think and write about technical subjects is a valuable national resource. This is also true of field specialists can respond to his arguments.
His argument

Think about the CVS downstairs from my office. It charges prices that it believes are profit-maximizing. Now suppose some indigent person comes in and burns all the magazines on their magazine rack for fun. The guy’s got no money, so CVS can’t recoup its losses. Does this force CVS to raise prices on Diet Coke to make up for the cost? No—CVS was already charging profit-maximizing prices, and past losses are irrelevant to determining optimal forward-looking pricing strategy.

Hmm logically this implies that people who live in high crime neighborhoods in which people do stuff like that don’t pay more for goods. But they do. So what is missing ?
 
Well first the thought experiment considers an unanticipateable cost and one repetition of which is not likely. Uncompensated health care isn’t like that at all.
 
Even a totally profit oriented for profit hospital chain will consider the forecast rate of unconmpensated care when deciding whether to invest in building new hospitals. A cost which doesn’t affect the marginal cost of a good or service and doesn’t in itself effect the elasticity of demand will affect entry, which depends on forecast average cost and not on marginal cost.
 
This will affect prices. The reason is that with higher unavoidable costs a higher ratio of price to marginal cost is required to convinced firms to enter.
 
Let’s imagine a socially useful application of Yglesias’s theory (if it were valid). Stealing from CVS and giving the the stolen goods to the median citizen would be a distortion free transfer from CVS shareholders to people on average poorer than CVS shareholders. This would cause increased welfare. I don’t think Yglesias thinks this would be a good approach.
 
I don’t think he thought the problem through to the end (oops I mean to the beginning — entry of firms).

slightly edited from Stochastic Thoughts

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Sorta Interesting … (Updated!)*

Thought y’all would enjoy this post, on one of THE BIG DEAL law-profs’ blogs.  It’s bloggers are right- to center-right libertarians, all (or at least most) of them former law clerks to one of the conservative Supreme Court justices.

Ah. And this is even moreinteresting.  Woo-hoo!

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UPDATE: Welll.  Hmmm.  As I said earlier today in a comment in response to JackD’s comment about my post, I was surprised to read the original law-prof blogger’s interpretation of Ginsburg’s weekend comments, because on Monday I had concluded the opposite after reading a quote from Ginsburg’s speech. 

The quote was:

As one may expect, many of the most controversial cases remain pending. So it is likely that the sharp disagreement rate will go up next week and the week after.

As I noted in my comment to Jack, “Sharp disagreement,” in Supreme Court coverage, usually means 5-4 decisions, although sometimes it means “fractured,” as in, there were a zillion separate concurring and dissenting opinions, and no one can actually figure out what the hell the actual result was. 

As I also said, the ACA case, of course, isn’t the only high-profile case the Court will decide in the next 10 days or so.  But I still read that comment as suggesting a 5-4 result in the ACA case.  The CW is that if the ACA is stricken down, it will be 5-4, but that if it’s upheld it will be 6-3.  But Kerr could be right.  Ginsburg might have just been sending out a red herring.  Who knows?  Or: Oh, what the hell.

Ooooh.  This is more nerve-wracking than betting on your Kentucky Derby favorite, who’s no one else’s favorite; your odds are even worse. And there’s no “place” or “show” here.  Unless ….

As I also said in responding to comments to my post—JackD’s and run’s—the impact of the poll I linked to in the last sentence of my post is, I think, that it suggests that, contrary to the CW of the last two years, the healthcare-insurance issue could be a big positive, rather than a negative, for the Dems in November, if the Court does strike down the entire ACA or the mandate part of it.  (And even if it doesn’t, since by the election most people finally will actually know what’s in the law, what’s not in the law, and what the purpose of the mandate is and how it relates to the preexisting-conditions provision.)  The Repubs want the status quo.  The Dems and a substantial majority of the public don’t.

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*In response to a comment by Gary, in the Comments to this post, asking what “CW” is, I wrote:

Conventional wisdom.  I’m sorry.  I did exactly what I hate when other people do that.  Especially mainstream-media bloggers like Matthew Yglesias, who regularly drops names of people I’ve never heard of, and the like, on his blog on Slate.  I guess now I qualify to blog on Slate.    
 
Again, sorry.

Beverly, 6/21

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Bain Capital vs. Berkshire Hathaway**

Matthew Yglesias channels … me!

Yep, that’s right.  And now that, as Yglesias discusses, Newark Mayor Cory Booker has given the Obama campaign permission to explain the differences between the various types of venture capital “models” (as Yglesias calls them), conceding that, yes, that may really be more relevant to the key issues in the campaign than Obama’s earlier relationship with Jeremiah Wright, I strongly urge the Obama campaign to do that—in detail, with as much specificity as is necessary to illustrate it. 

In my earlier post, I mentioned the distinction between, say, the funding-of-Silicon-Valley-startups venture capital model and the leveraged-buyout-to-extract-value-and-then-close-the-company model that Bain engaged in (apparently) regularly when Romney headed it.  Yglesias doesn’t mention the former but contrasts the latter with the genuine-turnaround model, which is the model that Bain and Romney claim was (and Bain claims, is)** theirs. 

Yglesias is right to point out that the genuine-turnaround model is distinct from the extract-value-and-then-close-the-company one.  But I think there’s also a distinction between the leveraged-buyout-to-extract-value-and-then-close-the-company model that Bain engaged (and, I assume, still engages) in, in which the intent is to “flip” the company as soon as possible, and the (to my knowledge) Berkshire Hathaway model, in which the venture capital firm, fund or holding company invests in companies, long-term, including buying some companies outright with the intent to actually own them for the foreseeable future.  (From Wikipedia: “Berkshire Hathaway Inc. … is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States, that oversees and manages a number of subsidiary companies.”)
Surely there are differences between the decisions a Bain-like company makes vis-à-vis the businesses it acquires in order to flip quickly for large profits and a Berkshire Hathaway-like firm whose interest in the acquired business is long-term, because the very purpose of the investment is different.  Those differences matter.  A lot, I would think.

As for Booker, his short-term interest seems analogous to the Bain venture-capital model.  Yglesias says he’s receiving quite a bit of campaign funding from finance types. Including, presumably, those of the Bain model.  (Or maybe Booker just doesn’t recognize the distinction.)*

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*This parenthetical was added after the original posting.

**This parenthetical was corrected for clarity.

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