Monday, December 31, 2012

We're Both Wrong

Bill,

Here's a passage from a highly praised essay from another of your favorites, Walter Russel Meade, on why neither post WWII liberalism (what he calls "blue liberalism", nor current conservatism or "red liberalism" as he calls it, have the answer for the kind of society we are both striving for::


"We cannot realistically solve our problems by trying to return to the 3.0 liberalism of the 19th century because the American economy of that era depended on conditions we cannot reproduce today. Though some may think it desirable, we cannot return to a largely agrarian economy. Nor can we replicate the industrial system of the 19th century, with its extremely high tariffs against foreign goods and a completely laissez-faire national attitude toward immigration. Trying to recreate the American economy of a century ago would lead to massive dislocations, depressions and quite likely wars around the world, not to mention thoroughly wrecking the American economy and bankrupting many of our banks and biggest corporations.

But if red liberal fundamentalism can’t work, blue fundamentalism can’t help us either. There’s no going back even half a century ago, because the great achievements of blue liberalism were also rooted in conditions we cannot replicate today. Between 1914 and the 1970s, when the blue social model took shape and rose to power and success, the world economy was in an unusual state. International financial and trade flows were much lower than before 1914 and after 1970, due to the disruptions of two world wars and the Great Depression. And the United States was so far ahead of the rest of the world in manufacturing that few American companies (or workers) had anything to fear from foreign competition. Capital was dramatically less mobile; it was much easier to tax high earners without driving savings and investment out of the country."

Happy New Year

Eli


Our Bet Will Have To Wait

Bill

At least until the AFC championship. Congratulations to your Broncos on a historic season. The number that sticks out for me as a causal but interested observer is 289, the number of points allowed by the defense. We need no sophisticated analysis to observe that's the fewest in the AFC.

In the days to come we will hear lots of about Peyton Manning's historic comeback, and deservedly so. The real difference is that he never had a defense behind him like this in Indianapolis.

Eli

Our System Is Working?:

Bill,

The members of congress don't seem to think so.

“Something has gone terribly wrong,” Senator Joe Manchin III, Democrat of West Virginia

"It's a travesty" Sen. Bob Corker, Republican of Tennessee

“This is one of the lowest points of the U.S. Senate,” Senator Barbara A. Mikulski, Democrat of Maryland.

 “I feel like I’m trapped in ‘Groundhog Day' ”. Representative Bill Huizenga Republican of Michigan

"...this legislative session ...already has reached historic proportions of failure..." Sen. Olympia Snowe, R-

Maine

Eli

Sunday, December 30, 2012

Cowardice

Bill,

A fine op ed by your man Greg Mankiw makes a series of points around which we are likely to agree. The country is spending too much money. The difference between what the government takes in and what it spends is, in the long term  unsustainable. On this point he agrees with Krugman (as if Krugman would ever acknowledge same) that deficits are not a short term problem but a long term one. Ultimately (and here he channels WP Knabe), he points out that the money will have to come from somewhere, and that somewhere can only be the middle class.

What he, and most commentators don't talk about is the how we got here. At this point, as with the Israelis and Palestinians, extremists on both sides are controlling the argument. The Democrats have their lunatic fringe too, all the folks who believe we can go on spending what we're spending and that taxing the rich will pay for it.  Meanwhile, as both you and I  have lamented repeatedly, anyone with enough wherewithal to hire a lobbyist seems to have no difficulty drinking from the public trough. You are right about representative democracy. We get the government we deserve. You are also right about my pessimism about all this. In short, I am disgusted.

Eli

The Lie that the Middle Class Won't Pay

Eli,

Another Sunday, another inane NY Times editorial and another day for politicians to propagate the lie that the middle class won't pay for bringing the federal government's fiscal house in order. Of course the middle class will pay. It will pay for a very simple reason: that's where the money is and that's where the spending is.

I've shared this graph before. It's from 2010 IRS data and shows adjusted gross income for various income brackets.



Total AGI for income brackets less than $30,000 totals 11.7% of the total. The millionaires and billionaires, oddly defined by you and Obama as those making over $250,000 isn't available in this IRS breakdown, but those posting AGI greater than $200,000 equals 26.7% of total AGI, and the middle class, those earning between $30,000 and $200,000 is 61.6%.

Obama has proposed between $1.2 and $1.6 trillion of tax increases on millionaires and billionaires earning more than $250,000 per year. Now that's over a 10 year period, so about $120 billion to $160 billion per year. Given the deficit in fiscal 2012 was about $1.2 trillion, you need to raise taxes on millionaires and billionaires a lot more or cut spending or raise taxes on the middle class.

My best guess is the increases in taxes for millionaires and billionaires making more then $250,000 per year proposed by Obama is about the most they are going to propose. So if he really wants to address the deficit, which I doubt he does, he has to cut spending, which overwhelming goes to fund welfare for the middle class via social security and Medicare or raise taxes on the middle class.

The middle class will pay, one way or another.

Bill

Saturday, December 29, 2012

The Shale Gas Boom

Eli,

This from "Booming Shale Gas Production Drives Texas Petrochemical Surge," in the Fourth Quarter 2012 edition of the Federal Reserve Bank of Dallas, Southwest Economy:

A highly profitable petrochemical industry has reemerged in Texas from the boom in U.S. shale oil-and-gas exploration, creating an internationally competitive sector than can produce a variety of products including plastics at a lower cost. 
Most of the world uses naphtha to produce ethylene, which is then used in "polyethylene, polyvinyl chloride, some polyesters and other substances." Naphtha can be found in natural gas liquids and is also a biproduct from petroleum distillation, and thus follows oil prices.

However, you can also use ethane to create ethylene and ethane is one of the natural gas liquids made abundant by hydraulic fracturing.

The article has an interesting table on the investment in ethylene capacity:


These are significant projects. The Chevron plant will make 1.5 million tons of ethylene and the compound will also have two plants to make polyethylene plastic. Total cost will be about $5 billion and 


The plants will employ 400 people and the construction project will create 10,000 jobs, the company said. 
Dow Chemical Co. (DOW), the world’s largest ethylene producer, plans to spend $4 billion in the U.S. to build a Gulf Coast cracker by 2017, two propylene plants and to reopen an idled Louisiana cracker. Sasol Ltd. (SOL) may spend as much as $4.5 billion to build a cracker and related plants in Louisiana.
I know this makes the greens see red. They were all for natural gas until it became abundant. In addition to the billions of investment made in the US for exploration and production and the additional billions in downstream investment and the tens of thousands of construction and manufacturing jobs and lower prices for end-products that use plastic (think everything), fracturing has lowered carbon emissions.

This graph uses data from the EIA's latest Monthly Energy Review and shows the trailing twelve months carbon dioxide emissions (in millions of tons) in the US.


 The big drop in 2008 was recession driven and I think shows why many remain skeptical of the green's goals of lowering carbon emissions. That is, it's pretty easy to lower carbon emissions: kill the economy, kill growth. Problem solved. However, if you actually have life to live, that's a not particularly attractive solution to a problem that seems to, no matter what, become more dire, more severe, more catastrophic with each data point. Storms are evidence of carbon-based climate change. Lack of storms are evidence of carbon-based climate change. Natural gas is a solution. Natural gas is the problem. We need a strong central government, the bigger the better, the more global the better, to command and control the use of a fuel that has resulted in a better standard of living for billions of people for over 100 years.

And here's the thing, carbon emissions are coming down with very little being done from a top-down, government directed mandate. I know you hate to admit it, but the free market did this pretty much all on its own. Natural gas, which has about half the carbon emissions per BTU as coal is displacing coal in the electric generation market, and is doing that because hydraulic fracturing has brought about massive reserves of natural gas, resulting in lower prices relative to coal. The transition isn't over because we are in the very early stages of natural gas displacing diesel, then gasoline, in internal combustion engines.


Bill

There are No Atheists in Foxholes or Republicans when they are handing out Subsidies

Eli,

The cries increase to stop the US Government from going over the cliff. The major broadcast and cable networks are in high dudgeon over the Republican resistance to giving Obama more money to spend. Reminds me of the kid throwing a tantrum in the candy store over not getting another lollipop.

Howard Schultz, CEO of Starbucks has joined other CEO's to urge Congress the Fix the Debt. Krugman hates it, so there is clearly something to be said for the group.

But there is something to Krugman's skepticism. One of my former bosses used to say, "There are no atheists in foxholes, nor Republicans when they are handing out subsidies." He also warned me more than once about visiting certain businessman to make sure I still had my wallet before I left the meeting.

Milton Friedman understood this quite well. The video below is short and typical Friedman. He articulates his support for free markets and distinguishes it from supporting business. (There is the added benefit of hearing him agree with Jane Fonda! No kidding). In one of his more famous remarks he states, “With some notable exceptions, businessmen favor free enterprise in general but are opposed to it when it comes to themselves.”



Businesses, large and small, want the special favors and protection that government can offer. The tragedy of administrations like George W. Bush and Obama (Bush I, II, III, IV) is they make a business out of granting favors to their anointed ones (Halliburton, Solyndra). Big businesses and Big Government wins. Small businesses loses, consumers lose, liberty loses. (I know, I know, you define liberty as the ability to force me to pay for Sandra Fluke's birth control, so you think liberty wins. But in the non-1984 world, liberty, as M-W defines it, loses). Why is bank concentration greater after Dodd-Frank? Why do the insurance companies and drug companies support Obamacare? You bemoan (often) the horrors of the 1800's but you never seem to see the similarities between the corruption of the post-civil war government and our current iteration.

Bill


Friday, December 28, 2012

You mean the House of Representatives are supposed to represent?

Eli,

Politico.com is mostly silly, this article more than most. The author is much pleased with himself to discover Republicans respond to the wishes of their constituents and if they don't accurately represent the desires of their public, will be fired at the next election. Now hold on, the House of Representatives is supposed to represent??? Get Jemmy Madison on the phone!

The inability to grasp this basic concept results in pejorative descriptions of the 55.1 million voters who cast a ballot for a Republican in the House of Representatives in 2012, versus the 54.5 million who voted for a Democrat to represent them in the House. Interestingly more votes were cast for Republicans to represent them in the House in 2012 than in 2008 while the number of voters deciding to vote for a Democratic representative fell sharply in 2012 versus 2008.  Despite this large and growing mandate for the Republicans some commentators feel compelled to label those who disagree with them, "the lunatic fringe."

This civics lesson from Politico and incentive lesson (politicians respond to incentives also) from the lunatic fringe of course is taking place within the broader argument over the budget. Why can't those damn Republicans recognize we HAVE TO RAISE TAXES??!!?? There is NO other way. Call me a lunatic, but there is money in and money out. The difference is a deficit or a surplus. You can increase money in, or decrease money out, or some of both, but there is nothing in the math that requires you to choose one or the other.

The Republican's refusal to countenance tax increases is not the action of a lunatic. It is the action of a Representative. It is not the refusal of someone denying math. It is the action of someone quite aware of two variables, either of which can change.

I know sometimes you feel like the system is broken. To me, this is exactly what the system is supposed to do. If there is no agreement, no law is passed. Well, we have no agreement, so no new legislation will pass to change the old legislation. If the implementation of the current legislation results in bad consequences, there will be an incentive to pass new legislation.

Bill


Science and a State of Mind

Eli,

I was a bit puzzled by one of your comments in your latest post, Economics as a State of Mind, but was too busy gorging on pecan pie and cookies to respond. In particular this statement I found curious:

When you write about responding to incentives, what is implicit in your argument is a belief in the character, mind set, psychology of those who are responding. But lots of people clearly don't respond in the way you describe, or see the world through your eyes. The same of course, is true for me.

What is particularly odd is this statement coming from a doctor. In the Cliff Notes version, Doctors tell patients, "don't smoke, don't drink, exercise, lower your cholesterol or bad consequences will occur." But we know that's a short hand version of saying, statistically a human body is more likely to respond negatively to drinking, smoking, lack of exercise and the common tendency of those negative reactions are liver damage, heart disease and diabetes. We certainly don't dismiss all of medicine because "lots of people clearly don't respond" in the way doctors warn. That's what the bell curve is all about. I'm highly confident you don't expect every body to react the exact same way to a stimulus under any circumstance. It would be similarly unwise to have the same expectations for Economics.

Contrary to what you state, I don't have a "belief in the character, mind set, psychology of those who are responding." Rather I start with a theory, test with observations, refine the theory. Lather, rinse, repeat. For instance, we start with a theory that lower prices results in higher demand. This seems to work across all markets. However we notice this demand response differs by, for instance, wealth, age, gender, education. We revise the theory to include these factors. You are correct, some people respond to incentives in different ways. But no one I know is arguing differently.

As far as philosophy driving economics, I'm in partial agreement. Milton Friedman was a strong advocate of free markets. He was also a brilliant economist. Did his advocacy of free markets drive his economic conclusions or did his economic conclusions drive his free market advocacy? Probably both. But I don't think economists are unique in this respect. Rachel Carson's "Silent Spring," was science in the service of politics. Much of today's global warming jeremiads are politically driven. I'm sure there are plenty of examples both near and far. Scientists are just as susceptible to incentives everyone else.

Bill


Monday, December 24, 2012

Economics As A State Of Mind

Bill

Adam Davidson reviews the performance of the British economy since the onset of the great recession in the Times Magazine this week, along with the arguments for and against the policies of the Cameron government to date. From this half of the BPS, it's not an encouraging story. Yet the folks running show over there seem to think they're doing just fine.

The longer we continue our conversation, the more I become convinced that the two current competing economic schools (let's call them Keynes and Hayek and their descendants (the likes of Krugman and Mulligan), aren't really arguing about economics. They are arguing for their vision of who we are, or who we might become. When you write about responding to incentives, what is implicit in your argument is a belief in the character, mind set, psychology of those who are responding. But lots of people clearly don't respond in the way you describe, or see the world through your eyes. The same of course, is true for me.

The problem for each side is that is in different times and  certain circumstances, both are likely to be right, or wrong, as the case may be. The larger problem, IMO, is that neither side is even remotely interested in listening to or learning from the other.

Maybe they should read the BPS.

Happy Holiday

Eli.

Saturday, December 22, 2012

Walk left! Stand right!

Unemployment and Unemployment Insurance

Eli,

This is one of my posts that makes your head explode. So be prepared.

Here's a graphic from the Wall Street Journal on the maximum duration of unemployment-insurance benefits by state, in weeks.

And here's the unemployment rate by state, from the Bureau of Labor Statistics.


Your trusted economist, the CBO recognizes 
Federal budget policies affect potential output mainly by affecting the amount of public saving (the combined sur- pluses or deficits run by the federal government and state and local governments) and the incentives for people and businesses to work, save, and invest. Different methods of achieving any given increase in public saving could have different effects on those incentives. For example, increases in marginal tax rates on labor would tend to reduce the amount of labor supplied to the economy,
Economists recognize increasing unemployment benefits is similar in nature to an increase in the marginal tax rate. That is, if you go back to work, you lose unemployment benefits. If you lose a lot of benefits and only get a little bit more from working, you face a high marginal tax rate. Despite recognizing this concept, the CBO ignores it in all of its analyses, which is one of the reasons I accepted your wager with such alacrity.

Here are the states with the lowest unemployment rates and the states with the fewest number of weeks of unemployment insurance. It's a pretty strong match, as you can see.



And here are the states with the highest unemployment rates and the greatest number of weeks of unemployment insurance.


I can hear your sighs and see your head shaking back and forth. "Of course there is almost a perfect match, higher unemployment causes states to respond with more generous benefits, and lower unemployment causes states to lower unemployment benefits."

But then again, maybe your CBO is correct and workers respond to incentives. If that is the case then the polices of Obama are causing higher unemployment and rather than considering this possibility:
They'd rather stand on principle and damage the economy in the process. Then, in the aftermath, like bugs exposed to the light, they'll crawl around frantically in an effort to blame anyone but themselves.
Bill

The Cliff, the CBO, the AARP and Redistribution

Eli,

The CBO's predictions of the impact on the economy for certain tax increases and spending decreases is an interesting document. I won't get into an argument whether their analysis is right or wrong, we've already made our wager on that. It is revealing, I think, that the CBO admits there is a long-term risk in choosing short-term stimulus.

I call this the St. Augustine argument, "Grant me chastity and continence, but not yet." A variant on this is the AARP argument. "Give us our welfare, make the young pay for it."

It constantly surprises me the young in this country seem to be going along with this, even supporting it. Either they don't realize how they are being saddled with the bill for the selfishness of today's and tomorrow's seniors, or realize it and believe this is a fair policy. In my more cynical moments I encourage the young to vote Democrat since I am one that will benefit from the St. Augustine's of the AARP.

From the CBO report:
Although reducing the fiscal tightening scheduled to occur next year would boost output and employment in the short run, doing so without imposing a comparable amount of additional tightening in future years would reduce the nation’s output and income in the longer run relative to what would occur if the scheduled tightening remained in place. If all of the policies considered in this analysis were extended for a prolonged period beyond the two years assumed here, federal debt held by the public— which is currently more than 70 percent of GDP, its highest mark since 1950—would continue to rise much faster than GDP. Such a path for federal debt could not be sustained indefinitely, so policy changes would be required at some point.
Over the longer term, the nation’s potential to produce goods and services is the key determinant of output and income. That potential depends on the size and quality of the labor force, the stock of productive capital (such as factories, vehicles, and computers), and the efficiency with which labor and capital are used. Lasting changes in those factors can have an enduring influence on the economy’s ability to produce goods and services.
Federal budget policies affect potential output mainly by affecting the amount of public saving (the combined surpluses or deficits run by the federal government and state and local governments) and the incentives for people and businesses to work, save, and invest. Different methods of achieving any given increase in public saving could have different effects on those incentives. For example, increases in marginal tax rates on labor would tend to reduce the amount of labor supplied to the economy, whereas increases in revenues of a similar magnitude from broadening the tax base would probably have a smaller negative impact or even a positive impact on the supply of labor. Similarly, cutting government benefit payments would generally strengthen people’s incentive to work and save, but the actual impact would depend on the nature of the cuts.
CBO has not estimated the longer-term economic effects of the fiscal policies analyzed in this report, but the agency has estimated the effect on output that would occur in 2022 under the alternative fiscal scenario, which incorporates the assumption that several of the policies are maintained indefinitely. CBO estimates that in 2022, on net, the policies included in the alternative fiscal scenario would reduce real GDP by 0.4 percent and real gross national product (GNP) by 1.7 percent. That projected effect primarily reflects two opposing forces: People’s incentives to work and save would be greater with that scenario’s lower tax rates, but the larger budget deficits and rapidly growing federal debt would hamper national saving and investment and thus reduce output and income.
In years beyond 2022, rising deficits under the alternative fiscal scenario would lead to larger negative effects on GDP and GNP and to larger increases in interest rates relative to the rates that would prevail under current law. Ultimately, the policies assumed in the alternative fiscal scenario would lead to unsustainable federal debt, from both an economic and a budgetary perspective.

Bill

Friday, December 21, 2012

Wager Accepted

Eli,

Sure, I'll take both your bets. Broncos v Patriots in the playoffs, I'll take the Broncos straight up.

The CBO projection will be wrong, with or without the cliff; I'll take that one also.

Bill

Lets Make A Bet

Bill

Two bets actually.

First the easy one. Patriots-Broncos in Denver for the 2nd round of the playoffs. Loser buys the winner  dinner. Winner gets to crow endlessly throughout the meal.

Next the hard one. Here's the CBO's scenario for the effect of falling off the fiscal cliff on the economy. In this case "baseline" represents the doomsday scenario



Fiscal or Economic Measure
CBO
Baseline
Alternative
Scenario
Federal deficit in FY2013 $641 billion $1037 billion
Economic growth in FY2013 −0.5% of GDP 1.7% of GDP
Unemployment rate for October thru December 2013 9.1% 8.0%
Public debt in 2022 58% of GDP 90% of GDP


If the CBOs predictions prove accurate, you read both volumes of  Irving Bernstein's landmark labor history of the 20s and 30s.




















If the CBOs prediction prove overly pessimistic (by 1/2 percent of GDP or unemployment rate say),  I read the voluminous  libertarian ideological tome of your choosing.

Eli  

Walk left stand right

Half A Loaf

Bill,

There's an interesting parallel between the Republicans recalcitrance over  accepting a deal with the President, and the Democrats 1969 refusal to negotiate with Nixon over his proposed health care plan. The plan, as the story goes, was torpedoed by Ted Kennedy because he favored a Canadian style single payer model and was sure that a Democratic President would bring that idea to fruition. We all know how that worked out. For the rest of his life Kennedy regretted his decision, as in the end, we got something pretty similar to what Nixon originally proposed. In the meantime healthcare spending as a fraction of GDP doubled.

In the months and years to come we'll hear the same kind of regret from Republicans, who could have had Simpson Bowles, Gang of Six, or Grand Bargain in a variety of forms, and now will get much less. In the meantime the prospects for that robust growth you long for will be further damaged.

Eli  

A note from the lunatic fringe

Eli,

Count me as part of the lunatic fringe. I guess I'm also one of the bugs crawling around.

What evidence or analysis can you provide that says the economy will be damaged more by doing nothing (the cliff) versus doing something, Plan A, Plan B etc.?

You would have to argue businesses and consumers have made the assumption Congress and the President have some magic potion to solve all ailments and have set their plans accordingly. In that scenario going over the cliff makes those assumptions false and therefore spending and investment decisions will change substantially. I find that line of thinking difficult to believe. Alternatively you can argue businesses and consumers have made *no* plans and going over the cliff results in lower activity. But that is also hard to believe. Plus, as we know government programs are filled with perverse incentives. Going over the cliff may stop some of those incentives and result in a better outcome. So even if no plans have been made, the new plans can be better not worse for the economy.

As far as the President's spending "cuts," I, like my fellow lunatic fringers, don't believe there are cuts or "cuts."

The cliff provides a way to balance cuts and taxes on a road to fiscal sanity. The result is exactly what you have been looking for. Well, you got it. I wouldn't choose this set of cuts and taxes, but it's better than Plan A or Plan B.

Bill

Fasten Your Parachute

Bill

We're going over the fiscal cliff for sure. Unless John Boehner is willing to lose his speaker ship by crafting a deal with with the Democratic minority in the House and bringing a handful of Republicans along, the Tea Party apocalypse worshipers will make sure of it. They'd rather stand on principle and damage the economy in the process. Then, in the aftermath, like bugs exposed to the light, they'll crawl around frantically in an effort to blame anyone but themselves. The President is ready to enrage his left flank buy cutting a deal that significantly reduces spending. Not as much as you'd like I know, but significantly. Boehner, I believe is equally ready to raise taxes to a far greater degree than most Republicans accept. He just can't get his lunatic fringe to go along.

Eli  

Living In The Here And Now

Bill,

You argue elegantly against the perverse incentives that social programs can produce, For some participants, your observation, whether anecdotal or not, is undoubtedly true. I remember an encounter as an emergency room moonlighter at a small hospital in a working class suburb of Boston with a newly pregnant 17 year old. When I asked her how she would support her newborn she blithely replied, "go on welfare." For her, such a choice represented the most rationale one available. Welfare reform, a bipartisan effort accomplished by a Democratic President and Republican Congress, ended such nonsense. (The left, or course hated it.)

But it's just as true that for large numbers of the elderly, disabled, newly laid off, and otherwise unlucky,  programs such as Soical Security, SSI, and unemployment insurance represent a bulwark against a level of misery that you would not condone. It's easy for both of us to wax theoretical about such matters, or to opine about what is good for folks whose lives are really unimaginable to us. Unless you are volunteering in a soup kitchen (and if you are I salute you), these folks are invisible to you and me. Do you really think the answer is to return to some sort of 19th century laissez faire winner-take-all economy and culture?  I wish I had a time machine to take you back there. If you think that pictures of thalidomide babies make you ill, I'd like to see your reaction to a week in a lower East Side tenement, or coal country, or a day working in one of your hero Carnegie's steel mills.

The best antidote to poverty is a robust economy. No argument there. But there isn't any consensus about how to get there, is there?. Just a lot of pathological certainly on both sides. The answer to antipoverty programs that don't work is to fix them or junk them in favor something else. It's to keep innovating. It isn't to do nothing.

Eli

The Fiscal Cliff, In Two Sentences

Eli,

If we go over the cliff, taxes will rise and spending will be "cut." If we don't go over the cliff, taxes will rise and spending will be "cut."

When I think about it like that I realize how masturbatory the news coverage is. But they are good at that.

Bill

Saturday, December 15, 2012

Poverty and Anti-Poverty Programs-Part 2

Eli,

It is no secret the best anti-poverty program is growth. Which is why the anti-growth policies, particularly of the past 20 years, are poverty inducing programs for our children. But let's not say that out loud because it's only a platitude giving the appearance of being mainstream when we know, we KNOW the only true anti-poverty programs are the programs that incentivize activities like Nicholas Kristof pointed out in his article, the CBO in its report and Casey Mulligan in "The Redistribution Recession." Well at least we can feel good about doing something.

If the economy grows 3% per annum it will double in about a generation, 35 years to double if it grows at 2% and almost 50 years to double if it grows at 1.5% per year. The economy troughed in Q2 2009 and since has grown (adjusted for inflation) at 2.2% per annum. And that's from the trough. Growth rates from the trough are almost always faster than the long-term trend. Obama's recovery is 1/2 the rate of the Reagan recovery. Since 1947 the economy has grown at a 3.2% compound rate, 50% higher than the growth from the trough of this recession. But let's not talk about that and how that is a poverty inducing policy.

Doubling the economy manifests itself sometimes in ways we can only imagine. For our grandparents growth manifested itself in bigger houses, hot and cold running water, microwaves, more leisure time, better health care, more reliable, safer cars. For our generation in better telecommunications bigger houses, more leisure time more reliable, safer cars, a better, cheaper and more varied diet. The growth helps everyone, not just the much vilified 1%. Everyone participates in this growth.

But I have an idea. Let's not talk about policies that hinder growth. Instead, let's talk about marginal tax rates for the rich, because it's unfair that 2% of the taxpayers pay 27% of the income tax and they should pay more. What will it do for the deficit? Little. What will it do for growth? Nothing to worse. But at least it's a consistent ignoring of incentives. Not believing high marginal tax rates lowers the incentive to work at the low-end of the pay scale is matched by the dis-belief marginal tax rates have an impact at the high-end of the pay scale as well.

You complain Paul Ryan mouths platitudes in order to appear mainstream. Is that the mainstream that keeps growth low and dooms generations to a lower standard of living and millions to poverty? Is that the mainstream that keeps inner city teen unemployment at 50%? Is that the mainstream the encourages parents to keep their children ignorant for $600 per week?

I can think of a group that mouths platitudes but really doesn't care about innovative solutions because it  fails to see the incentives its compassion creates and it would much rather go to bed KNOWING it has done the right thing despite the mountain of evidence it has made things worse. But that group isn't the Republicans.

Bill


Poverty and Anti-Poverty Programs

Eli,

Everyone knows, why we just KNOW it, that Democrats have a monopoly on caring resulting in well-thought out anti-poverty and other safety-net programs. Let's ask Nicholas Kristoff.

THIS is what poverty sometimes looks like in America: parents here in Appalachian hill country pulling their children out of literacy classes. Moms and dads fear that if kids learn to read, they are less likely to qualify for a monthly check for having an intellectual disability.
Many people in hillside mobile homes here are poor and desperate, and a $698 monthly check per child from the Supplemental Security Income program goes a long way — and those checks continue until the child turns 18.
“The kids get taken out of the program because the parents are going to lose the check,” said Billie Oaks, who runs a literacy program here in Breathitt County, a poor part of Kentucky. “It’s heartbreaking.”
This is painful for a liberal to admit, but conservatives have a point when they suggest that America’s safety net can sometimes entangle people in a soul-crushing dependency. Our poverty programs do rescue many people, but other times they backfire.
Some young people here don’t join the military (a traditional escape route for poor, rural Americans) because it’s easier to rely on food stamps and disability payments.
Antipoverty programs also discourage marriage: In a means-tested program like S.S.I., a woman raising a child may receive a bigger check if she refrains from marrying that hard-working guy she likes. Yet marriage is one of the best forces to blunt poverty. In married couple households only one child in 10 grows up in poverty, while almost half do in single-mother households.
Most wrenching of all are the parents who think it’s best if a child stays illiterate, because then the family may be able to claim a disability check each month.
Let's move across the ocean to the innovative solutions France has implemented to combat poverty.

Let’s take an unemployed mother living alone with two children between six and 10 years old. In 2010, there were 284,445 French families in this situation that were on welfare.
This mother will be given the “Active Solidarity Income.” Since she has two children, the amount will be $1,100. If she is renting an apartment with a $650 rent, she will be given the “Housing Customized Aid,” amounting to $620. Then she will receive “Family Allowances,” which amounts to another $160. Finally, let’s add the payment known as “Allowance for the start of the school year,” which is $750 once a year, or $62.50 per month. (She might even benefit from other aids, but these are the most common.) She will be given a total of $1,942.50 per month.
Now imagine that this mother has found work and will be paid the “legal minimum wage,” which amounts to $1,820 gross—or $1,430 after taxes. Since she would be earning $1,430, she will no longer receive the “Active Solidarity income.” Her “Housing Customized Aid” will be lowered to $460, but she will still be given “Family Allowances” and the “Allowance for the start of the school year.” Therefore, her total income will amount to $2,112.50. She will then belong to the 50 percent of French workers earning $1,960 per month.
For this mother of two, working again will bring her family an additional income of only $170. Moreover, this $170 is likely to be lost in the cost of transportation to work, since the cost of gas in France is $7 per gallon. In any case, such a small amount of money is not an incentive to go back to work. Between staying home and working, the choice is simple: welfare is a better deal. 
Well that's France, couldn't happen here, after all the Democrats and their innovative solutions would not allow that kind of distortion to hinder job growth and enslave people in poverty rather than save them from it. Let's ask Randy Lovelace,


At Metal Technologies in Bloomfield, Indiana these are boom times. In the last three years business has doubled for the auto parts supplier -- which sells engine casing compartments, oil pans and other components to larger, tier one suppliers in the auto industry. As auto sales have surged, so has demand for Metal Technologies products.  
Still, the company with 128 employees has 5 to 7 job openings it can't fill. "We get really frustrated when we have a job and we can't get anyone to work it," said Randy Lovelace a production manager at Metal Technologies.
Even more incredible, Lovelace said some applicants have told him they'd rather stay unemployed instead of taking a job starting at $10.00 -to- $12.00 an hour. 
"We have actually had people who we have hired for jobs. We have had them sit in front of us, set to start the next day, and then they call in and say, "I'm not gonna take that job, they just extended unemployment benefits,'" said a frustrated Lovelace. "At that point we've called the state of Indiana and turned 'em in. But yeah, we've had people say, 'I'm not taking that job.'"
It's dangerous to argue from anecdote, I can see you now furiously searching for anecdotes of your own to show incentives don't matter. So let's ask the (non-partisan) Congressional Budget Office:

The UI system reduces the incentive for benefit recipients to accept a job offer because the earnings from that job will be partially offset by the discontinuation of their UI benefits. For example, an unemployed worker who is currently receiving UI benefits and is considering accepting a job that would pay $600 per week (or about $30,000 per year) after taxes would lose those benefits if he or she took the job. If the worker received $300 per week after taxes from UI benefits, then taking the job would increase his or her income by only $300 per week after the loss of those benefits is taken into account. In this example, UI represents a 50 percent effective marginal tax rate on earnings, which reduces the financial benefit of taking a job as long as UI benefits are available. (That tax rate is lower for workers whose benefit amounts are low relative to the earnings they could receive from a new job.) The net effect is that unemployment insurance would be expected to increase the amount of time that recipients remain unemployed.
Indeed, empirical studies have found that UI affects the rate at which recipients accept new jobs. For example, research has shown that many workers find jobs in the weeks immediately before and after their benefits run out. Studies of the duration of unemployment in periods during which states changed the structure of their UI systems—say, by increasing benefit amounts or by allowing more weeks of benefit receipt—reported similar conclusions.

You are indeed correct we need innovative solutions to these issues. Thank God we have a "slim, handsome politician from the Midwest who not that long ago asked us to set aside our differences and work together" to come to the rescue. And our saviors solution? DO MORE OF WHAT ISN'T WORKING. Brilliant! Innovative! Caring!

Who says we are doing more of what isn't working? Why the CBO. From the same report as above:
UI benefits expanded considerably during and after the recent recession. The unemployment rate rose from about 5 percent in 2007 to nearly 10 percent in the latter months of 2009, and the share of unemployed people who had not worked for 26 weeks or more increased substantially. In response, policymakers changed the UI system in several ways: They increased the number of weeks for which workers can receive benefits, increased the amount of benefits, and shifted more of the responsi- bility for funding UI programs to the federal government. As a result, UI benefits peaked at more than $150 billion during 2010 (when the annual unemployment rate peaked at 9.6 percent). Unemployment and benefit payments have both declined since then.
The "in response" part is debatable. Did benefits increase in response to unemployment or did unemployment increase in response to higher benefits? It seems the CBO earlier put the causation as benefits increase unemployment, but backs off in the above paragraph. In any case, a graph (from the same CBO report), besides breaking up the text, shows this increase in benefits visually.


Casey Mulligan in "The Redistribution Recession," points out unemployment insurance (UI) programs weren't the only innovative changes made to (in your view) offset the impact of the recession but in Mulligan's analysis, and by implication the CBO's as well, which created incentives to stay unemployed. Mulligan cites increases in the SNAP (Supplemental Nutrition Assistance Program), aka Food Stamps, in the Farm Bill of 2008 which relaxed asset and net income tests and increased the maximum benefit and the Recovery Act that granted states relief from work requirements and increased the maximum benefit. But wait there's more because the innovative thinkers that create programs that result in an "increase the amount of time that recipients remain unemployed," came up with another way to increase marginal tax rates on the poor. (After all that's why these programs don't work as expected, because it results in marginal tax rates of 50% or more). The compassionate, caring, innovative thinkers decided why not have a program to encourage mortgage modification for low-income earners. Does that create an incentive to remain a low-income earner? I'm guessing your caring, compassionate, innovative colleagues would be shocked by such a suggestion. But Mulligan decided to actually measure the impact and concludes, "Home mortgage modification thereby had the potential to redistribute as many resources as the expansion in unemployment insurance or food stamps."

We are now in the fifth year of "Emergency Benefits and Federal Additional Compensation" for unemployment compensation. Maybe the emergency will end some day. Then again, Mulligan points out Medicaid is set to have an "historic expansion" in 2014 due to the Patient Protection and Affordable Care Act. Medicaid, as we know, "pays health care providers on behalf of low-income individuals and families." The idea this may encourage people to keep their income low is beyond the comprehension of the innovative thinkers. But for a neanderthal like Mulligan,
even though the safety net has already expanded because of recent changes in eligibility rules for the UI and SNAP programs, Medicaid may be the main way for the safety net to further expand in the near future.
Medicaid benefits can dwarf UI and SNAP so if Mulligan and the CBO are correct these new incentives to stay poor will result in more poverty and lower employment.

Poor Paul Ryan, all he has to offer are those tired and worn and stale and hmmm what's the word I'm looking for, the antonym of innovative maybe, "platitudes" that make his party "appear more mainstream." And it must be that Ryan is "mouthing platitudes" in order to create an appearance of caring and compassion because we all know, why we just KNOW that only the Democrats care for the poor and only the Democrats come up with those innovative programs to reduce poverty and unemployment.

I wish we could find something that reduces poverty. But I guess, like Ryan, all I do is mouth platitudes to giver the appearance of being mainstream. Now why would I do such a thing? It must be because I'm a heartless, soulless bastard. What could possibly convince me those platitudes work. Why do I so assiduously avoid innovation solutions. I don't know. Maybe Walter McDougall can help. From "Throes of Democracy" McDougall illustrates the remarkable advances in production and innovation in industrial organizations and uninhibited competition that brought about lower railroad freight rates. "Wherever competition existed the capitalists lost and the customers won." He writes of Andrew Carnegie:

Was Carnegie a ruthless and greedy monopolist? He certainly was ruthless to steelmakers less shrewd and industrious than himself. But largely under his aegis stell production rose from 20,000 tons in1867 to more than 1 million tons by 1879 even as the price dropped from $166 to forty-five dollars per ton. Steel made railroad tracks stronger and cheaper. Steel (plus the hydraulic elevator invented in 1870) made possible skyscrapers that turned genteel Chicagoans and New Yorkers into cliff dwellers. Steel put cheap, superior tools and utensils into everyone's hands. Steel made Carnegie the richest man in America by the time he sold out to J.P. Morgan in 1901 for $480 million and began storing up treasure in heaven by donating 90 percent of his fortune to philanthropy.
Damn that Carnegie! Cheap steel. Better homes and buildings protecting people from fire. Superior tools and utensils into everyone's hands.  Damn him.

McDougall on Rockefeller and Standard Oil:

But his greatest gift was oil: for illumination, lubrication, paints, dyes, and all the products of organic chemistry from fertilizers to aspirin. As early as 1882-decades before the automobile made gasoline the national blood-a superintendent at the Baltimore and Ohio railroad proclaimed that without Rockefeller's petroleum "every wheel would grind to a stop within twenty-four hours."
Damn that Rockefeller! Doesn't he know only innovative government programs can bring illumination, both physical and metaphorical. Doesn't he know innovative ideas like fertilizers that increase crop yields and lower prices are the provenance of the Democrats. Who does he think he is with his platitudes appearing to be mainstream?

McDougall didn't get the message from the future on platitudes:
Who benefited from all these swift development in technology, management, mass production, and labor conditions? Consumers, because the changes all fed a prolonged deflation that made everything cheaper. So even though the Goulds and Carnegies commanded headlines and most people still lived on farms, this was the era when the urban (and incipient suburban) middle class captured the heights of American culture. 
People rising from poverty and crushing work conditions, increasing consumer choices at lower prices. Capturing the heights of American culture. All without a New Deal? All without sincere innovative top-down driven solutions? Impossible!

Bill

Wednesday, December 12, 2012

Let's Cut The Defecit

Bill,

The Wall Street Journal has an online do-it-yourself deficit cutting tool.  It's quite instructive and more than a little humbling. What struck me was how little money many of the most talked about changes actually save. Below are a few examples

Proposed Change
Revenue Saved (in Billions)
% of Deficit
Increase Medicare eligibility age
30
2.7
Phase out social security COLAs
20
1.8
Repeal home mortgage interest deduction
50
4.5
Eliminate funding for new energy technology
2
0.18


If you make every available cut to entitlements the calculator offers, including repeal of the ACA, you still only cut the deficit in half. 

It's easy to see why each side is waiting for the other to blink particularly when it comes to suggesting specific spending cuts. 

I'll leave my attempt online for your inspection.

Eli






Saturday, December 8, 2012

Paul Ryan Wants To Help The Poor

Bill

Here's a link to Paul Ryans's speech at the Jack Kemp Leadership Award dinner, introducing Marco Rubio, this year's winner. If one were listening to the  the 1st ten minutes (the election comments excepted) coming out of the mouth of say, Cory Booker or our newly minted senator, Chris Murphy, one wouldn't know that the speech was being given by one of the country's leading conservative thinkers and rising political stars. The fact that Ryan, (and Rubio in his speech accepting the award) chose to ficus on the poor is noteworthy in itself. The moments when Ryan insisted upon the need to seek bipartisan solutions to the country's problems felt eerily reminiscent of another slim, handsome politician from the Midwest who not that long ago asked us to set aside our differences and work together.

But other than the predictable condemnations of government driven efforts and proclamation of their failure,  followed by the the usual paens to faith, family and community, I didn't hear much in the way of innovative solutions.

It may well be true that poverty, or the distintegration of the social fabric of the working class, or the growing gap between haves and have nots, are problems that cannot be solved from the top down. But they can't be solved by mouthing platitudes in an effort to make one's self and one's party appear more mainstream either.

Eli


Wednesday, December 5, 2012

Another Dave Is Gone

Bill,

The Times just posted Dave Brubeck's obit. He was the 1st jazz musician I ever heard, recorded or otherwise. My older brother left me a copy of Time Out  before he left for college. I think I played that thing until the vinyl grooves wore out. I can hear the fantastic syncopation of Blue Rondo Al La Turk, DADA DADA DADA, DA DA DA DADA DADA DADA in my head. Brubeck made jazz a lifelong passion for me and no doubt for millions like me.

He'll be missed.

Eli

Tuesday, December 4, 2012

Denver In Denver

Bill,

That's how the Butcher household (Patriots fans all) used to refer to all those away games at Mile High. It seems we were always playing there, and  mostly losing. At lot of Patriot heartache happened there. The Elway teams were always well coached. The defense made you pay in blood for every yard gained. And, or so it seems in my memory, there would always be some terrible (from this side of the rivalry) moment that determined the outcome. For exhibit A one only need refer to "Bailey, Champ."

I don't think the earlier contest this season tells us much. Manning the Elder clearly had not found his comfort zone. The Patriots on the other hand, are famous for peaking in December, and their porous pass defense to appears to have strengthened a bit. The Ravens in Baltimore are the major remaining test on your side, while we have the 49ers and the Houston, both at home.

Should be fun

Eli

One more time on ACA solving the access problem?

Eli,

Tell me again about ACA solving the access problem:


Bill


From Brad DeLong, 

Brad DeLong: A Question for ACA Implementation Gurus...

A QUESTION FOR ACA IMPLEMENTATION GURUS...

I understand that CMS has absolutely no desire to encourage more cream-skimming, and every desire and internal incentive to make sure that those who treat more difficult patient populations are not financially penalized by doing so.

I understand that as a country we are spending twice as much as western European countries while lagging 2 years behind them in life expectancy and 20% behind them in treatment coverage. I understand that the hope is that it will be cheaper and quicker to treat your 32 million new Medicaid and exchange-based insured now that they are showing up regularly with insurance rather than showing up in severe crisis only.

But Massachusetts has been walking down this exchange-and-public-program-expansion road for six years now, since Mitt Romney signed RomneyCare. Massachusetts has been vacuuming up doctors and nurses from Costa Rica and elsewhere and still has been finding that the cost of treating your state population is higher when 97% are insured than it was when 88% were insured. And there aren't enough loose doctors and nurses in the rest of the world for the ACA to vacuum up enough of them to meet the needs of not 1 state but 50 states.

The investments in medical infrastructure and workforce--less than $30 billion for 32 million newly insured, less than $1000 for newly insured--seem an order of magnitude low.

What is your guess as to what will happen if the ACA works for access, works for quality, works for coverage--but the extra health-care workforce needed isn't there, and the lines start to get longer?


Monday, December 3, 2012

Tell Me that Part About ACA Solving Access Issues Again.

Eli,

The Huffington Post reports Wal-Mart will respond to the incentives created by the ACA by reducing employee hours to less than 30 hours per week. Under ACA, it will not have to offer health insurance. Instead, workers will be subsidized by you and me.

Walmart, the nation’s largest private employer, plans to begin denying health insurance to newly hired employees who work fewer than 30 hours a week, according to a copy of the company’s policy obtained by The Huffington Post.

I suppose you could say this is a positive feature of ACA in that it picks up insurance coverage. But it's a pretzel logic that can come to the conclusion lowering worker's hours so they receive fewer benefits from employers is a good thing since they'll now be rescued by the government.

Employees of Wal-Mart, Welcome to your liberal paradise!

Bill





Manning v. Brady

Eli,

My Broncos and your Patriots both clinched this weekend. I hope they meet in the playoffs as it is always a good game when any Manning and Brady (aka Johnny Bravo) play against each other. I've been unable to see much of my Broncos this year, but the wins seem to be more impressive every week. Seven in a row. Of course, in Denver, they always talk Super Bowl even before the season starts. After yesterday's win,  it might not be that crazy.

Bill

Sunday, December 2, 2012

Is the ACA the Answer?

Bill

As I have argued previously, the ACA is at best an imperfect solution. It solves the problem of access but not (yet) of cost. It's not the solution I would have chosen (although you would have liked that even less). But it can't (and won't) be any worse than what we've done so far, so far, which is to feed the medical industrial monster.



And I have the same hold-my-head-in-hands reaction as you to the argument that letting "consumers" decide all this in the hurly burly of a market driven healthcare system is the answer. Such a system will certainly be cheaper, since, as in 3rd world countries, it will only provide care to those who can pay.  And there is no reason to believe, and certainly no previous experience to suggest, that it will deliver better health, or even adequate health for those who can't.

Eli



The Game is Increasingly Rigged

Eli,

The "game" as you call it, or the allocation of resources is not rigged yet, but unfortunately increasingly it is so. President Obama famously says he wants an economy where "everyone gets a fair shot, everyone does their fair share, and everyone plays by the same rules." I think it's the height of hypocrisy particularly the part about everyone playing by the same rules.

A $90 billion Department of Energy direct subsidy and loan guarantee program for solar, wind and battery producers is explicitly favoring one over another, explicitly different rules for different players.

The bail-out of GM and Chrysler is explicitly favoring those two companies over Ford and the domestic production of Honda, Toyota, Nissan etc. It explicitly suspends the rules for a favored player.

Cash for clunkers, which is certainly one of the most useless programs of the past few years, and there is a lot of competition for most useless, suspends the rules for car buyers during a short window of time. Subsidizing the purchase of electric vehicles shows favoritism to some players.

Visa, Mastercard, American Express and the banks spend billions to offer consumers the convenience of using credit and debit cards for everyday purchases. Retailers embrace the technology to lower their costs, increase throughput and attract consumers. One day, Senator Dick Durbin (D-IL) decides the fees retailers pay to banks is too high and unilaterally lowers those fees resulting in fewer free checking accounts for low-balance depositors, which had been subsidized by the card fees. Fair shot. Fair share. Same rules.

Dodd-Frank institutionalizes too big to fail, increases the costs to operate smaller banks, resulting in a shift in market share to the larger banks.

Tax filers with AGI greater than $200,000 generate 27% of total personal adjusted gross income and pay 51.75% of total income taxes. Filers with AGI between $50,000 and $200,000 generate 50% of total adjusted gross income and pay 41.55% of total income tax. Which means these 48.9 million filers pay 91% of the total income tax. 3% of the filers with AGI greater than $200,000 pay 52% of the total income tax collected and including filers with AGI over $50,000 34% of the filers pay over 90% of the total income tax. Fair share. Same rules. Fair shot.

Teenagers with little work experience or skills to offer employers are priced out of the labor market dooming them to chronically high unemployment. Fair shot.

Mortgage relief programs are a hodge-podge of rules and incentives leading to higher unemployment and a calcified market. Fair shot. Same rules.

All of these programs plus ethanol subsidies, the Ex-Im bank and the multitude of other programs and subsidies that favor the connected, who use that connection to become rich result in the rigged game.

What has Obama done to change the rigged game? Rigged it more. It's the Democratic Party go-to response: if something isn't working-Do More of It. You are right, Americans may be more willing to accept the reality of higher taxes or fewer services if they believe the game isn't rigged. But unless Obama has a Saul on the road to Damascus moment, it's not happening with this administration.

Bill

A Path to Fiscal Responsibility

Eli,

Tim Geithner is making the rounds of the Sunday talks shows and has a curious phrase to describe the benefits of the President's tax and spend plan: The plan will put the government on "a path to fiscal responsibility."

The plan puts us on the path, just the path, to fiscal responsibility. I see no other conclusion than Geithner recognizes our current budget is fiscally irresponsible and the President's plan is, while pointing towards, on the path to, fiscal responsibility, is also fiscally irresponsible. I'm glad Geithner finally recognizes this basic fact.


Federal Government Outlays and Receipts ($ in Millions)
Source: Monthly Treasury Statement



Bill

The Money's In The Middle Class

Bill,

Your vision of tax justice points out that out with great elegance. At the upper end of the earning spectrum, those who receive a disproportionate share of the nation's wealth also pay a disproportionate   share of its tax. The idea that that increasing top marginal tax rates will significantly improve the nation's fiscal imbalance is a fantasy. You could, in fact, raise marginal rates to 100% and that still wouldn't come close to moving the ledger from red to black.

And your adjuration also rings true that unless entitlement spending is reined in, the inexorable step will be that those in "the $50,000 to $200,000 [interval] will be targeted next". Americans will eventually have to either accept less from the government or decide they are willing are willing to pay for it. It doesn't help that neither political party is willing to point out this inconvenient truth to its constituents.  But most Americans will have an easier time (eventually) accepting this reality if they do not believe the game is rigged in favor of the rich.

Eli

Politically Driven Healthcare, or Healthcare for the Loudest

Eli,

Every time, and I mean every single time, you speak of the inefficiencies and mis-spending that takes place under our current health care system I shake my head (in despair) and ask given your views on those items how you could possibly be in favor of the Affordable Care Act. How could you possibly be a proponent of IPAB. How could you possibly think that a politically driven healthcare system, called ACA, will be better than the prior politically driven healthcare system that resulted in these poor spending decisions you keep bemoaning. You continue to assert the best way to change the Federal Government's unsustainable spending trajectory on Medicare and Medicaid, and the price distortions that creates in the private market is: DO MORE OF IT.

Your latest complaint against healthcare spending focuses on the possible lack of utility of mammograms. Let's assume mammograms, as the New England Journal of Medicine study quoted in the Times claims, are essentially useless. How does that poor decision get changed in the current health care system and under ACA? For ACA, I suppose your answer is, "A panel of smart people will be appointed, the IPAB, to make these decisions." I think you are dreaming. Medicare payment decisions, which then drive a lot of the practices adopted by the private insurance market, like mammograms for women, or prostate cancer screens for men, are driven by the the politics of the loudest. Scream loud enough and long enough and the Federal government and private pay insurance companies cave and offer "free" screenings for these types of cancer. The latest example of this is contraception. Sandra Fluke hasn't figured out Walgreen's sells condoms so we must create "free" access to contraception. Right now we have healthcare goodies for the loudest. The IPAB institutionalizes this.

I don't know who makes mammogram screening equipment. I suspect it is GE. What are the incentives for GE? Obviously, lobby CMS (today's version of IPAB) to reimburse providers for mammograms. Lobby providers to urge CMS to reimburse mammograms. The consumer is completely separated from any of these decisions.

I know you don't like to even consider the possibility that the lack of consumer involvement in healthcare is the reason healthcare spending is too much (whatever that means) but is seems pretty plain to me. And every time, and I mean every single time, you bring up one of these vignettes  I'm completely befuddled why it isn't plain to you as well.

Bill  


Tax Justice

Eli,

You speak of tax justice. I just don't see what evidence you have to support a sense of injustice.

The IRS publishes handy spreadsheets on the taxes it collects, one of which called Number of Individual Income Tax Returns, Income, Exemptions and Deductions, Tax, and Average Tax, by Size of Adjusted Gross Income, Tax Years 2001-2010, shows various tax return items segmented into the AGI (adjusted gross income) brackets.

The chart below shows total AGI per different size of AGI. For instance, the total amount of Adjusted Gross Income for tax returns showing AGI between $100,000 and $200,000 is $1.9 trillion.  For AGI over $200,000 total AGI is $2.2 trillion, or 27% of total AGI. For AGI between $50,000 and $200,000 the total AGI is $4.0 trillion, or 50% of total AGI.

Adjusted Gross Income by Size of AGI
$ in 000
Source: IRS


AGI isn't taxable income. The next chart shows personal exemptions and deductions categorized by the same AGI brakets.

Personal Exemptions and Deductions by size of AGI
$ in 000
Source: IRS

Those with AGI $200,000 and more take about 11% of the total personal exemptions and deductions. Those with AGI between $50,000 and $200,000 take 41%, or $1.2 trillion, of the total $3.0 trillion in exemptions and deductions.

The $200,000 and above AGI groups have about 33% of taxable income, a larger share than it has of AGI. But that's because it takes fewer, as a percent of the total, exemptions and personal deductions than the lower income groups. This next graph shows how taxable income skews more to the higher income brackets. Again, it's because they take less exemptions and deductions as a percent of the total.

Taxable Income by Size of AGI
$ in 000
Source: IRS

More taxable income, multiplied by higher tax rates gets more taxes paid as a percent of the total.

Total Income Taxes Paid by Size of AGI
$ in 000
Source: IRS


You can see how this results in tax rates as a percent of AGI in the following graph. I'm guessing the rates go down in the top two brackets because of a large amount on investment income. I think it's a good guess, but a guess nonetheless. 

Total Income Tax Paid/AGI by Size of AGI
Source: IRS

So tell me. Where is the injustice you want to correct? 

There's a more important point. The money is in the middle class, $50,000 to $200,000. The more well-off have greater resources to move income and avoid taxes, those in the $50,000 to $200,000 will be targeted next. Is that justice also?

Bill




Saturday, December 1, 2012

Taxes And Incentives

Bill

Your ongoing tutorial on the relation between taxation and incentives is deeply appreciated. There's no question that we all respond to the incentives created by tax policy. A good part of the time, (whether one agrees with the incentive created or not), that seems to be the point of tax policy. I certainly wouldn't buy mini bonds, or fund my kids Roth IRAs if it weren't. Now I imagine you see that as part of the problem. The government's efforts to guide the economy, to reward some behaviors and punish others creates inefficiencies that the marketplace, left to its own devices would resolve.

Whatever my sympathies (and here my fiscal conservatism is ascendant), I think the Democrats are overreaching in their current brinkmanship over the taxation and spending cuts. Victors, it seems, always do. I like the idea of a cap on deductions as a way of limiting those incentives without wading into the minefield of deciding which specific deductions to cut. I am equally sympathetic to having a minimum tax for upper upper income earners. You might call that envy. Others, including myself, would call it justice. The Dems however seem determined to once again avoid the hard choices on entitlements, especially Medicare, that got us into this mess in the 1st place.

Eli

The Other Reason We Spent Too Much on Healtcare

Bill

The Republicans aren't the only ones having trouble accepting science. Lots of us are equally guilty. The accumulated evidence in multiple venues examining various populations over long periods of time suggests that  screening mammography for all comers increases cancer incidence rates (because lots of small tumors are detected earlier) but does not reduce overall breast cancer mortality. Ditto for chemical screening for prostate cancer. Yet routine mammography is still hailed as some sort of magical bullet, and any evidence to the contrary is regarded as the work of evildoers.

Despite the revolution in evidence based medicine that has predominated for much of my career, magical thinking still persists. Just because something makes sense doesn't mean that it will turn out to be so. More is not always better. I still remember the dean's opening remarks my first day of  medical school. About 90% of patients, he reminded us, will get better on their own. An unfortunate 5% will worsen despite all efforts to help them. The real business of learning to be a doctor revolves around the 5% or so for whom one's skill will make the difference. After 25 years in the business I'd say that figure comes pretty close to the mark.

The country does 80 million CT scans a year. We only have 300 million people. One in four Americans doesn't need a CT scan

Eli