Archive for October 2013


KISS our healthcare woes goodbye

Josh Barro has a good article, which exposes the fact that the GOP doesn’t really have a good alternative to Obamacare.  But there are good alternatives (Josh is generally too pessimistic), and Obamacare is a lousy healthcare system.

We need to do three things:

1.  Make healthcare affordable.

2.  Do so without running up costs.

3.  And hold down costs without excessive inequality.

It’s not easy, but it’s actually not all that hard either.  We need to implement 4 reforms:

1.  Stop subsiding health insurance (end the tax deduction).

2.  Deregulate, deregulate, deregulate, (health care provision.)

3.  HSAs plus single-payer catastrophic.

4.  Decentralize, decentralize, decentralize.

The first item is the low hanging fruit; intellectuals in both parties support ending the tax deduction. McCain ran on it, and Obama included a very gradual phase-out in his plan.  It might take 50 years, but eventually the Feds won’t be paying 35% to 40% of the cost of health insurance.  This will put enormous pressure on providers to hold down costs.

The second item is more low-hanging fruit.  Progressives like Yglesias and reactionaries like me both want more immigration of doctors and nurses, and more ability of non-doctors to provide routine medical services.  The immigration reform will happen within a few years, but occupational licensure is a much tougher nut to crack.

The third item is the most controversial, opposed by the left and the right.  The left doesn’t like HSAs, but for the wrong reason.  If the government provides universal catastrophic (defined as coverage for health care expenses that exceed your HSA account), then the effect on equity is quite small.  Indeed compared to our current system it’s not even clear which way it goes.  HSAs do increase inequity a bit, but universal single-payer catastrophic coverage improves equity.  The GOP doesn’t like government health insurance, but once you have HSAs and universal catastrophic, there’s really nothing for private insurance companies to do, other than skim off money from the system.  If I’m wrong about equity, any deterioration could be offset in a VASTLY more efficient way with low-wage subsidies.  Having people consume health care that others pay for encourages enormous waste.  Avoiding HSAs is a very inefficient way to improve equality a small amount, when the universal catastrophic coverage has already taken care of the worst inequities.

The fourth item is more important than many recognize, more low-hanging fruit.  If we go to universal single-payer catastrophic, the public system will be HUGE.  The Feds can’t run that sort of huge system efficiently.  Look at that New Yorker article comparing Medicare in El Paso and McAllen, if you don’t believe me.  Even small Scandinavian countries don’t run it at the national level (I’m told); they run the system and raise the revenues at the county level.  So the government part of the system should be run and financed at the county level.  The only role of the Federal government should be to give lump sum payments to each county, based on population, age distribution, frequency of obesity, etc. The grant would equal the expected cost of the county’s program.  At the margin every dollar of waste in McAllen should come out of the pockets of their taxpayers, and every dollar of saving in El Paso should free up money for other programs like roads and schools.

PS.  Disclaimer:  I would massively benefit from the plan I propose.  I HATE dealing with insurance companies, and under my system 100% of my lifetime health care expenditures would (probably) come out of my HSA, I’d never have to deal with private or government insurance.  I would have spent far less on health care, and I’d don’t think I’m that unusual.  I think my plan could drive spending from 18% to 12% of GDP, i.e. the level of places like Switzerland, where people pay for much more of their care out of pocket. I’d guess it would end up being roughly 50-50 public/private in provision.  That means lower taxes for Americans.

I’d benefit so much that I’d gladly pay a much higher rate of (progressive) payroll tax in order to subsidize lower income people, so they could have HSAs too.  But no income tax, that abomination also must be abolished.


PPS.  Will be busy–sporatic blogging for a few days.

Brad DeLong, sounding unusually market monetarist, calls a Nobel Prize-winning believer in liquidity traps a “dumbass”

And no, he wasn’t talking about Paul Krugman!  Here’s the Fama comment about QE that set him off:

They’re basically neutral events. I don’t think they do very much.

Fama argued the Fed simply swapped low interest federal debt (reserves) for low interest federal debt (T-securities)

DeLong insisted the market reaction showed that Fama was wrong in saying they don’t do very much:

The profound cluelessness as to what is going on in financial markets today is mind-numbing.

Something I’ve said about 862 times.

People, I’m not making this up.  You fell asleep last night in a world where market monetarism was a fringe theory and woke up in a world today where everything is topsy-turvy.  Arguments market monetarists have been making for years are suddenly conventional wisdom in the Keynesian community.

Quick!  Someone please dig up a quote where Krugman says QE is basically a neutral event, and that it doesn’t do very much.

HT:  TravisV

Update:  Marcus Nunes sent me the following Krugman quote:

“It is, or should be, immediately obvious from our analysis that in a direct sense the BOJ argument is quite correct. No matter how much the monetary base increases, as long as expectations are not affected it will simply be a swap of one zero-interest asset for another, with no real effects. A side implication of this analysis (see Krugman 1998) is that the central bank may literally be unable to affect broader monetary aggregates: since the volume of credit is a real variable, and like everything else will be unaffected by a swap that does not change expectations, aggregates that consist mainly of inside money that is the counterpart of credit may be as immune to monetary expansion as everything else.”

That which is not forbidden . . .

The US might well have more regulations than any other country on Earth.  Just think of all the IRS regs, for instance, or medical care, banking, etc.  This calls into question the claim that our problems are due to laissez-faire.  But it does allow for the possibility that we have the wrong set of regs.

So why does the US rate fairly high on various indices of economic freedom?  (Yes, I know that we are dropping, but we’re still around the 90th percentile, or higher.)  Perhaps it has to do with that comparison people used to make between the US and the Soviet Union:

In the US, that which is not explicitly forbidden is allowed.  In Russia, that which is not explicitly allowed is forbidden.

Unfortunately this is no longer quite as true of the US, but it’s probably still more true of the US than Russia.  Of course the Russian approach is a blueprint for corruption.

I thought of this comparison when I read this article about the new Shanghai free trade zone.  The article is a bit cryptic, but I think it’s saying that China is trying to become more like countries where everything not explicitly forbidden is allowed.  I’d appreciate any comments, have I misread the article?

There has been a lot of chatter in the market about the new Free Trade Zone to be set up in Shanghai soon. In this insight piece, ChinaScope summarizes the key workings and impacts of the new zone for investors in China.

According to people familiar with the matter, when vice Premier WANG Yang first handed the free trade zone proposal over to Premier LI Keqiang, the name on the cover page was ‘Shanghai Free Trade Zone’, and LI changed it into the version we’re now familiar with – China (Shanghai) Free Trade Zone. This tells us two things: 1.) The Chinese policymakers will be establishing more than one FTZ in China; 2.) The ‘Shanghai FTZ model’ must be replicable nationwide, which explains the reason why Beijing seemed to be so prudent by announcing a long ‘negative list’.

Going through the unprecedented ‘negative list’, which specifies the things that cannot be done in the Shanghai FTZ, we see the biggest change made by the new leadership so far – a clear directive to stop approving things from the very beginning of the process and start identifying the ‘red lines’ in the first place. Some may call it ‘administrative deregulation’, but we prefer to name it ‘efficient governance’. The Government has sent out a clear message to the world that the first thing requiring change is China’s inefficient project approval system, which historically seemed to be a breeding ground for bribery and corruption.

Knowing that Premier LI stated at the executive meeting of the State Council on October 25 that China will remove the registered capital floor set for startup companies, and the current ‘top-down’ annual review system will be replaced by a more efficient annual reporting system. Such measures were expected to be first implemented in the Shanghai FTZ, and clearly the regulators had just decided to move a bit faster.

As for the financial sector, the general development plan released on September 27 confirmed that the Shanghai FTZ will help accelerate China’s capital account convertibility, interest rate liberalization, and yuan internationalization; additionally, it mentioned that a trading platform for overseas investors will be allowed to be built within the Shanghai FTZ and overseas companies will gradually be allowed to trade commodity futures, further to the approval that has been given by the China Securities Regulatory Commission to the establishment of futures exchange within the Shanghai FTZ.

In our view, as the Government starts to shorten the ‘negative list’ after using the Shanghai FTZ as a testing ground to streamline the nation’s inefficient administrative system, foreign investors will find doing business and investing in China becoming easier. More doors will be open in addition to the current QFII and RQFII system, as interest rates and eventually currency floors break down the capital wall over time.

Pants on fire

1.  Taxes:

The president defended his proposal by saying that, for high-income taxpayers, “the tax rates would just go back to where they were under President Clinton.” The president reminded his listeners that the economy grew at a rapid clip during the Clinton years, adding tens of millions of new jobs.

2.  Spying:

WASHINGTON — The White House and State Department signed off on surveillance targeting phone conversations of friendly foreign leaders, current and former U.S. intelligence officials said Monday, pushing back against assertions that President Obama and his aides were unaware of the high-level eavesdropping.

Professional staff members at the National Security Agency and other U.S. intelligence agencies are angry, these officials say, believing the president has cast them adrift as he tries to distance himself from the disclosures by former NSA contractor Edward Snowden that have strained ties with close allies.

3.  Healthcare:

President Obama repeatedly assured Americans that after the Affordable Care Act became law, people who liked their health insurance would be able to keep it. But millions of Americans are getting or are about to get cancellation letters for their health insurance under Obamacare, say experts, and the Obama administration has known that for at least three years.

PS.  Off topic, James Pethokoukis sent me a Larry Kudlow interview of Alan Greenspan. All I can say is: Thank God for Ben Bernanke!  And I’m not a Greenspan hater, I don’t think he’s to blame for the mess we are in. But he must be about 115 years old by now, and it was definitely time for new blood at the Fed.

PPS.  I’ve had nothing to say about the computer “glitches” because that’s not the issue.  The issue is and has always been the fact that Obamacare outlaws the only kind of insurance that makes any sense—catastrophic insurance.  Glad to see people are finally waking up to that fact.

Ben, please drop the employment trigger

The forward guidance policy announced last fall was widely seen as a partial victory for the NGDP targeting approach:

1.  It combined inflation with a variable closely linked to RGDP growth.

2.  It made policy conditional on the state of the economy.

The basic idea was that the Fed promised they would not raise rates AT LEAST until one of the following two things happened:

1.  Unemployment fell to 6.5%

2.  Inflation had risen to 2.5%, on a forward-looking basis.

Dropping the unemployment trigger would make policy more expansionary, and that’s a good thing.

Bernanke already seems to be having doubts about the 6.5% figure, and deep down I’m pretty sure he would agree with this post:

Bernanke said Sept. 18 that “the first increases in short-term rates might not occur until the unemployment rate is considerably below 6.5 percent.”

Why do I favor dropping the unemployment trigger; doesn’t that move us away from NGDP and toward an inflation target?  Not really, because the current policy is extremely weak precisely because there is no real “level targeting” aspect to it.  There’s no catch-up, it’s a let bygones-be-bygones approach.  If we dropped the unemployment mandate, then we’d effectively be moving to an inflation/price level target hybrid.  There would definitely be a little bit of catch-up.  Not much, just a 1/2% or so, but that’s better than nothing. Under current policy it’s quite likely that inflation will still be below 2% when the Fed starts raising rates (roughly when unemployment falls to 6%.)  I.e. there is no catch-up at all for the current policy, which is undershooting their 2% inflation target.

As a practical matter either approach would fall short of the NGDPLT ideal, indeed either approach would fall short of a 5% NGDPLT policy starting from today, with no catch-up, as NGDP growth will likely undershoot 5% either way.  But dropping the unemployment trigger would make policy slightly more expansionary, and oddly enough conservatives/libertarians might like it more, because they hate seeing the Fed target unemployment. (Indeed I seem to recall George Selgin criticizing the employment trigger.)

And best of all, there would be no loss of credibility, as the new promise would be 100% consistent with the previous promise.  A promise not to do X if A occurs, is 100% consistent with an earlier promise not to do X if A and B occurs.

HT:  Michael Darda