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Another Reason for a “Public Option”
12
October
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I was just listening to this week’s This American Life– part one of a two part series on understanding the current debate over health care.  I had an epiphany about insurance companies and the need for a public option.  Intuitively, I was already aware of this, but the argument only just seemed to crystallize:

Insurance companies stand between health care providers and health care consumers.  We (or our employers) pay an insurance company to pay our doctor’s bills.  We allow them to retain a small amount of our premium as profit earned for serving their function— a function we must find valuable, otherwise we wouldn’t pay them.

One of those functions is to spread risk among policy holders so that at any given time, more money comes in than goes out.  We can’t do that on our own, so we pay someone else to do that for us.  This makes sense.

The other thing we pay insurance companies to do is to keep costs down.  An individual insurance company negotiates service fees with providers.  If one insurance company can secure lower costs of service, they can require lower premiums and therefore attract more customers and make more profit.  They have an incentive, individually, to keep costs down.

However, systemically, insurer profits are generally 3-5% of amount paid out.  If health care costs rise across the country, the amount of payout increase and the amount of profit along with it.  If health care costs fall across the country, the profits fall with them.

So, while one insurance company may have a profit motive to reduce their cost of care compared to another insurance company, there is actually a negative incentive to reduce the cost of care in general.

In this case, the profit motive is working against keeping industry-wide costs down and we see the effects in the out of control rate of increase of health care costs.  It’s projected that by 2009, the average American family will spend half their income on health care.  Insurance companies are clearly not earning their profit in this task.

A public-option health insurance plan with broad access (not just for the currently-uninsured) would have the benefit of changing this balance.  It would be concerned by mandate and national scale with reducing not just the local cost of care, but the global cost of care.  This provides a competition and a profit motive to other insurance companies to work to reduce their cost of care relative to this public option and thereby, inadvertently, work to reduce the global cost of care.

Listen to This American Life: More is Less.

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It’s either Evolution or Gay Marriage… Pick One.
09
April
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The argument goes that marriage is naturally the coupling of one man and one woman, as though there is some inherent quality about men and women or about marriage itself as an autonomous, free standing institution that “naturally” leads to this definition. This definition must be defended from those who wish to destroy society by trying to change who can get married.  Society, they say, depends on this particular definition of marriage.

This is backwards. The definition of marriage depends on society. Marriage is not a natural phenomenon nor a free-standing institution. Marriage is a social contract defined by society. It is completely mutable and has no inherent nature beyond what society defines for it. If not, then what gives inherent meaning to marriage as between one man and one woman? Is it a gene… the monogamous heterosexual marriage gene??

If there is some biological inherency in one-man-one-woman marriage, then it must be in its current form via evolution. Looking back through the historical record (even the one provided by the Bible), we see that marriage has been one-man-many-women, it has been about finance and property, it has been about alliances and power. It has changed, evolved.

So, either marriage as defined by DOMA (one-man-one-woman) is a consequence of some biological configuration that is subject to change via evolution and has arrived at it’s natural present state through natural selection, or marriage as we know it is socially constructed and has changed because society has changed it.

(I suppose there’s the third option of the Intelligent Designer having created marriage in it’s current state and then a pernicious devil-like character has gone back through history and the Bible and planted false evidence of a different notion of marriage in order to trick us.  But some things are just too absurd to believe)

I doubt anyone takes the biological evolution of the nature of marriage seriously. So we as a society are permitted to change the definition of marriage. Your definition is not sacred and neither is mine. It never has been.  It is now and always has been what we define it to be.

A storm is coming. That storm is the dying fit of those who wish to suppress the democratic process by which states are changing the legal definition of marriage to match the social contract already written by our changing culture. The storm is coming, but you do not need to be afraid. A rainbow coalition of people of every creed and color is what comprises society. And that society is increasingly choosing freedom over fear.

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A Great Government is What Makes America Great
25
February
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“My fellow citizens, never forget: We are Americans. And like my dad said years ago, Americans can do anything.” (Jindal, 2/24/09)

What makes America great?  Is it the greatness of Americans?  Is it some special LOST-island-like quality about the land we inhabit?  Or is it our values and their expression in our system of government?  While geography, natural resources, and immigration have most certainly affected our history (often for the better), what makes America great is that we are a nation of laws, not of men, where values are institutionalized in the government; chief among them is freedom.

Freedom is more than just freedom to…  It’s also freedom from…  Freedom from constant fear about personal safety or random acts of violence; freedom from oppressive search and seizure; freedom from crippling exogenous, uncontrollable financial ruin; and freedom of access to lifesaving health care.

“Republicans believe in a simple principle: No American should have to worry about losing their health care coverage, period. We stand for universal access to affordable health care coverage.” (Jindal, 2/24/09)

Really?  Just as long as it doesn’t involve a government guarantee??  I think this depends on what your definition of “universal access” is.  If by “universal access” you mean that anyone who can afford to pay for it can get access, then you do not mean “universal”.  If you mean by “universal access” that you can get lifesaving care, but you’ll end up losing your house in the mountain of resulting debt, then you do not mean “freedom of access”.

“What we oppose is universal government-run health care. Health care decisions should be made by doctors and patients, not by government bureaucrats.” (Jindal, 2/24/09)

Again, what this really means is that health care decisions should be made by doctors, patients, and for-profit insurance companies trying to spend as little on your treatment as possible.  This, again, is a false freedom.  The freedom to have someone make a profit-based decision about your health is far less free than a government bureaucracy being involved.  The freedom of a doctor is limited by the profit motives of an insurance company.

Reject false dichotomies between freedom and government involvement!  Freedoms are guaranteed by the government, empowered by the people.  Your freedom of speech is inalienable but enforced by the government.  The free market is built upon government security, government provided stability, government issued currency, government enforced contracts, etc.  Your freedom to drink tap water without fear is secured by a government agency.

Instead of complaining about ineffective government, work to make government better.  You have the freedom to make and keep America great.

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Reading Notes: The Irrelevance of Equilibrium Economics – Kaldor
11
February
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Reading Notes on: Nicholas Kaldor, The Irrelevance of Equilibrium Economics, in Further Essays on Economic Theory, Holmes & Meier, 1972.

Equilibrium Economics, as embodied by Walras and Debreu (where equilibria of competing forces determine observed economic states), is “barren and irrelevant.”

Assumptions of economics, unlike hard sciences, are not based on observation. For example, some are unverifiable: producers maximize their profits, consumers maximize utility. Some are counter-factual: perfect competition never exists, markets are not impersonal, economic actors never act from perfect knowledge.

Equilibrium economics wasn’t intended to describe reality, but it is often asserted as the description of how individuals act in a decentralized market to maximal outcomes. Neoclassical economics takes this view as the axiomatic starting point for all other theories.

This sort of economic theory started as a first-draft approach that was buttressed by intellectual scaffolding (“assume perfect competition for now… we’ll deal with the real world when we understand the theory better…”), but instead of removing such unrealistic scaffolding, more and more was added, such that now, economics is even more divorced from the real world than ever before-more filled with arbitrary assumptions than previously-in order to satisfy the modern demand for logical cohesion.

“In fact, equilibrium theory has reached the stage where the pure theorist has successfully (though perhaps inadvertently) demonstrated that the main implications of this theory cannot possibly hold in reality, but has not yet managed to pass his message down the line to the textbook writer and to the classroom.”

… To be Continued …

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This Margaret Mead Believes
08
February
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Anthropologist Margaret Mead’s essay for This I Believe praises the intrinsic human oneness that unites us all as well as the culture in which we are raised that separates us.  If we are to be one human race, we must learn about the differences and similarities of the human cultures that so shape us.

She writes:

I believe that human life is given meaning through the relationship which the individual’s conscious goals have to the civilization, period and country within which one lives. At times, the task may be to fence a wilderness, to bridge a river or rear sons to perpetuate a young colony. Today, it means taking upon ourselves the task of creating one world in such a way that we both keep the future safe and leave the future free.

You can read or listen to her whole essay here.

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Value and Distribution in the Classical Economists and Marx – Garegnani
07
February
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Reading Notes on Value and Distribution in the Classical Economists and Marx - by P. Garegnani, Oxford Economic Papers 26, 1984, 291-325.

Theories of value and distribution that seek to explain distribution and prices by means of price equilibrium between the forces of supply and demand.  Keynes refuted the idea that a competitive economy tends toward an equilibrium between the supply and demand of labor, creating an equilibrium wage.  

Another refuted idea (by Sraffa and Robinson) is that factors of production can be measured independently of distribution, challenging assumptions that distribution is governed by supply and demand of said factors.

The classical surplus theory, as expressed by Quesnay, states that the (agricultural) produce beyond what is required to pay the wages of the laborers and provide for the next year’s crop are social surplus and available to the society to dispose of without jeopardizing social survival.  Production and distribution are linked because the subsistence of the laborer is required for production and reproduction.  Smith extended Quesnay’s surplus to apply to all production, not just agricultural production, making profit the equivalent of social surplus.

Thus, the surplus is the share of the product going to non-laborer classes of society.  Wages are determined by the habits of the country as the assign what constitutes subsistence.  Ricardo argued that any rise in the wages of agricultural laborers would be absorbed by an increase in population or that the new standard of living would become permanently expected.

Adam Smith described the relationship of workmen and masters in wage disputes as unequal: masters can hold out longer in such disputes than workers as workers have a more immediate need for the masters than the masters have for the worker.  Smith saw this as keeping the average wage reluctant to rise.  Marx extended this idea to relating the average wage to the current pool of un/under-employed laborers willing to work for the lower wage.  

The common view among these economists is that the wage is governed not so much by social levels of subsistence, but rather from the institutional circumstances unrelated to social production and therefore ought to be studied separately.

(To be continued…)

 

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Four Tools For Turning The Economy Around
02
February
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Dr. DeLong has a post today that covers the four tools available to turn around a depressing economy:

  1. Inflation - Inflate your way out.  This is really bad, but preferable to another great depression.  We will do this if we have to, but it’s not that bad yet.
  2. Monetary Policy – The central bank buys government bonds to entice business to invest in production.  This is the weapon of choice, but we’ve already exhausted its possibilities.
  3. Credit Policy – The government tries new policies designed to loosen lending and get people investing in otherwise risky projects.  We’re trying this a little bit.
  4. Fiscal Policy – The government borrows and spends, directly stimulating the economy.

From Dr. Delong:

This brings us to the fourth tool: fiscal policy. Have the government borrow and spend, thereby pulling people out of unemployment and pushing up capacity utilisation to normal levels. There are drawbacks: the subsequent dead-weight loss of financing all the extra government debt that has been incurred, and the fear that too rapid a run-up in debt may discourage private investors from building physical assets, which form the tax base for future governments that will have to amortise the extra debt.

But when you have only two tools left, neither of which is perfect for the job – credit policy and fiscal policy – the rational thing is to try both, at the same time. That is what the Obama administration in the United States and other governments are attempting to do right now.

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Tax Cuts or Universal Health Care?
30
January
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Today’s Krugman Op-Ed in the Times points out that creating Universal Obamacare would cost less than the tax cuts in HR1.  Not only is health care spending at least as stimulating to the economy as tax cuts, when you spend money on health care, you’ve invested in the health of people!  Now, again, I’m not a doctor nor an economist, but I’m pretty sure that healthy people produce more GDP than sick people.

If that argument isn’t convincing to you, perhaps it would be beneficial to contemplate for a moment that we are the only industrialized country where an unemployment crisis is also a health crisis!  We’re also the only industrialized country where a personal health crisis is also a personal financial crisis (as in if you get sick, you could lose your house, not because you can’t work, but because you can’t pay the bills!)

Health Care Now!

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Does It Work?
29
January
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“The question we ask today is not whether our government is too big or too small, but whether it works…”  (Barack Obama, 20-Jan-09)

This ought to be the ultimate question, regardless of who is President or what party they belong to.  It’s what really matters, right?

We ought to ask the same question of the economic stimulus bill (HR1 – American Recovery and Reinvestment Act of 2009) that, though passing, failed to get any Republican votes.  As far as I can tell, the reasons are some combination of:

  1. Not enough immediate infrastructure spending as a fraction of the total amount of spending
  2. Insufficient reliance on tax cuts or too much reliance on direct spending
  3. It was written by Democrats

I hope we can all agree that Representatives objecting on grounds of authorship–sacrificing the well being not only of their own districts but of the entire economy in order to play a petty game of irrelevant politics–are nothing short of idiotic.

The first issue is related indirectly to the second in that the questions we really want to answer are: how many jobs can we create through a combination of spending and tax cuts and will it be enough?

Direct spending creates jobs by creating demand and by enabling shelved projects to be completed.  People are needed to make the extra products being demanded and to implement the projects being carried out.  It’s fairly straight-forward.

Tax cuts create jobs by giving individuals more money-in-pocket to spend and by giving businesses more capital to re-invest in operations.  The problem here and now with this is that scared people don’t spend extra money, they save it or use it to pay down debt on money they already spent.  Businesses can’t re-invest in production if there is no concomitant increase in demand.

Ultimately, we want to get the biggest bang for the buck and the way that is measured is by the associated multiplier:  The government spends a dollar on building a road, so a firm gets a new dollar.  That firm hires two extra people and pays them each $0.40 from that dollar.  Those people each have $0.40 extra from that dollar and use it to spend another $0.20 they wouldn’t have otherwise spent.  That spending goes to another firm and the process repeats.  Ultimately, we’ve bought more than a dollar’s worth of stimulus with our dollar.  It works similarly with tax cuts.  But which one has a higher multiplier?  Direct Government Spending! (See the previous post on this subject.)

If you listened to House Republicans, you might not know that.  They even have gone so far as to fudge the analysis behind their tax-cuts-only alternative (which satisfies #3 also, by the way), saying it will produce 6.2 Million jobs when the analysis they cite indicates it’s only 4 Million jobs (See Dr. DeLong’s post about this.  He’s the one who knows what he’s talking about.)  By contrast, the Obama plan creates 8.7 Million jobs under the same analysis.

The current Republicans are idealogically bankrupt.  The standard lines of Cut Taxes and of Shrink Government are no longer applicable.  We may not be in a Post-Partisan or a Post-Racial world, but I think it’s clear that we are in a Post-2000s-Republicanism world.  Cutting taxes and cripling government is the problem, not the solution.

By presenting a plan based entirely on tax cuts and refusing to bargain or even debate the original proposal in good faith, the House Republicans have shown that they have no interest in reality, solutions, or functional government.  All they are interested in is an unequivocal adherence to a dead-end policy because it advances a political ideology.  They are deceiving their constituents at a crucial juncture when time and clarity are of the essence!  They are not interested in asking Will this work? but only in asking Will this match my ideology? Why don’t we question the patriotism of people who operate in this deceptive, counterproductive mode, sabotaging plans for a functional government in favor of party gain?

There is a place for conservatism, opposition, debate, and competition among ideas.  There is no place for deception, bad-faith negotiation, and pure partisanship.  It is time to put away childish things.

Edit:  This is exactly my point: Building a Conservatism That Can Win Again (Via David Frum’s blog no less… Yeah, the Axis of Evil guy.)

Now imagine if the GOP did not have such a knee-jerk opposition to spending and actually thought strategically.  The lede could have been “Republicans voted against the measure because it did not include enough large infrastructure projects and lacked imagination.”  Instead of fighting Dems on the dollar amount of spending, knowing that we would lose that fight in any event, we could have stood with Obama and called for large high-tech infrastructure projects that would employ large numbers of minorities in construction and white collar suburbanites in development.  These projects (high speed rail corridors as an example) would also capture the imagination of the green close-in suburbs that are turning viciously against the GOP and have the strategic benefit of jamming up the young Dem members (Webb/Warner/Hagan/McCaskill) who depended on these voters for their victories.

Not that I want to see my Junior Senator (McCaskill) lose, but this shows that your party interest doesn’t have to be contrary to the public interest! (c.f. Andrew Sullivan here.)

Edit 2:  Dr. DeLong talks about Good and Bad stimulus skeptics here.  It’s worth the read because it separates out ideological doubt from evidentiary doubt.  It’s fine if you have academic objections to the stimulus plan, as long as they are not demonstrably false, unacceptable academic objections.  It’s definitely not ok if your objections are “belief-based” instead of “reality-based”.  DeLong says:

The depressing thing is the number and credentials of the stimulus skeptics who are making arguments that are either theoretically incoherent or empirically irrelevant.

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Blame Fannie Mae?
28
January
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This is probably beating a dead horse, but yet more evidence has come out disputing the idea that Fannie Mae and other GSEs (Govt. Sponsored Enterprises) pushed lending toward risky sub-prime loans, encouraged people to take out loans they couldn’t afford, and otherwise precipitated the current economic recession.

Both of these come from Dr. DeLong’s blog.

First is a set of documents that show how Fannie Mae realized the risk involved in making adjustable rate loans and participating in the market for them created by the private sector.  Instead, Fannie Mae wanted to redirect the market toward fixed rate loans, which they had an advantage in selling, and to discourage the use of the home as an ATM.

Second, is a little Supply/Demand sort of discussion about how when the price of something drops, if it is because of increased supply, the quantity sold will increase.  If it is because of decreased demand, the quantity will also decrease.

So, knowing this, we should be able to look at a time-plot of the market share of GSE-originated loans and private sector loans, notice which way the “quantity” curve moves (up or down) and that will tell us if the crash (price drop) is a supply issue or a demand issue.  Looking at just such a graph (and reading Dr. DeLong’s explanation, which comes from Milton Friedman!), we see that in fact as price went down, quantity went down, leading us to conclude that:

This means that the dominant feature of the mortgage market in the 2000s was not an expansion of supply by Fannie Mae and Freddie Mac pushing their implicit government guarantee past the limits of prudence, but was a reduction in demand for Fannie Mae and Freddie Mac’s products as private-sector mortgage lenders aggressively pursued and took away their markets.

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