Erdmann and Yellen will like this story
Janet Yellen has argued that the long term unemployed are not permanently out of the labor force, and that with faster growth in aggregate demand we can re-absorb many of those people. Kevin Erdmann has done a number of thoughtful posts arguing that the extended unemployment benefits, which ended at the beginning of this year, raised the jobless rate somewhat.
This story caught my eye:
It’s been a rough year for the long-term jobless, with Congress refusing to renew an extension of federal unemployment benefits and some states slashing already-meager safety net programs, but a new study by a pair of Federal Reserve Board economists offers some hope for the future.
In a paper issued this week, Tomaz Cajner and David Ratner find that the percentage of the unemployed who have been jobless for more than 27 weeks – the definition of “long-term” unemployment – has been dropping sharply in recent months, and that there is strong evidence to suggest that it is because they are finding jobs rather than simply dropping out of the labor force altogether.
The news is good for the jobless, and it’s also good for Cajner and Ratner’s boss, Federal Reserve Board Chair Janet Yellen, who has staked out a public position claiming that as the economy continues to recover, the long-term jobless and even those who have left the workforce in discouragement, would begin to find work again.
Yellen’s position is in stark opposition to a competing theory backed by prominent Princeton University economist Alan Krueger and others, which holds that the long-term jobless are highly marginalized. In Krueger’s analysis, the long-term jobless have been so alienated from the workforce, for example, that even their presence in large numbers is not enough to drive down wages.
Further support for Yellen’s theory appeared yesterday in the National Association for Business Economics Business Conditions survey. NABE found that fewer companies are having trouble attracting skilled workers today than did this time last year – a counterintuitive finding, given that the economy has added 1.2 million jobs in the last 12 months and skilled workers were, presumably, among the most attractive candidates for hire. A possible explanation is that, as per Yellen’s prediction, discouraged workers are rejoining the labor force.
In their paper, Cajner and Ratner point out that in terms of creating the large number of long-term jobless, the Great Recession was much worse than previous economic downturns. It peaked at 45 percent of the jobless, whereas in the 1982 recession, it topped out at 26 percent.
But the government did not offer 99-week unemployment benefits during previous recessions.
“In many ways the fight against unemployment during the recent recovery has been mainly one of bringing down the long-term unemployment rate,” they write. And finally, that’s starting to happen.
“Since December 2013,” according to Cajner and Ratner, “the long-term unemployment rate dropped 0.5 percentage point, thereby accounting for almost the entire decline in the aggregate unemployment rate.
Oddly, the media discusses Yellen’s explanation but not Erdmann’s. Or maybe it isn’t odd, maybe it’s normal.
Off topic: Back in 2009 we were told that there had been a housing “bubble.” That there was all sorts of wasteful malinvestment. We now know that there was much less malinvestment than people assumed, and I doubt bubbles even exist.
First cities like New York and San Francisco came back. Then much of the East and West Coasts. Then Texas. And now Miami is red hot. Those empty condos were absorbed several years ago, and they can’t build new ones fast enough. Imagine how strong the US housing market would be right now if the government hadn’t cracked down on immigration in 2006, and then drove NGDP down sharply in 2008-09
The conventional wisdom will eventually need an alternative explanation for the Great Recession. How about tight money?
On another issue, Harold Pollack tweets:
Halbig straightforward case of conservative judicial activism. It’ll be curious see whether any commentators who opposed ACA acknowledge it.
I do. I opposed Obamacare, and also think that when the law is ambiguous the courts should go with clear Congressional intent.
BTW, Kevin Erdmann has an excellent 11 part series that explains why low interest rates lead to less leverage, not more. It also touches on lots of other interesting topics. Here’s one example from part 10:
This relates to another topic where I would reverse the standard narrative – international capital flows and wage levels. It frustrates me to see economists universally referring to the movement of production to low wage economies, when the opposite is true. Sometimes when the earth revolves around the sun, it looks like the sun is circling the earth. And, here, we have uncontroversial data that capital flows overwhelmingly to high wage economies. In cases where capital flows change noticeably, it is usually where institutional improvements in a developing economy lead to an expansion in the productive basket of goods they can supply, and so capital flows there to accommodate the new production. Because wages are generally low at an absolute level, it appears that production is moving to exploit low wages, but this is absolutely wrong. The trigger for expanded production is also a trigger for higher wages. Production doesn’t move to where wages are low – it moves to where wages are rising. This subtle distinction is so fundamental and so important to a proper understanding of international economics, and yet so universally misstated.
I’m still working my way through the series.
Tags:
23. July 2014 at 09:25
Prof. Sumner,
Re: Erdmann’s series, is there any analysis out there of Japan and what historically happened to P/E ratios and profit margins as NGDP growth expectations rose and fell?
I asked Erdmann that question and he replied in the comments section of this post:
http://idiosyncraticwhisk.blogspot.com/2014/07/risk-valuations-part-9-greenspan-put.html
23. July 2014 at 09:47
Thanks for the kind words, Scott.
I’d like to add that the two links embedded in the last block quote also point to the other side of that beneficial set of international capital flows. It seems strange that so much developing economy capital gets parked in low-return US securities, when there is such a need for capital in developing economies. But, if we view human economic development through the prism of risk aversion and the search for certainty, I wonder if the existence of low risk foreign savings vehicles available in the developed world helps to meet the need for low risk savings that would normally be the incentive for the elite in undeveloped economies to institute corrupt and limited-access institutions.
23. July 2014 at 09:49
” I opposed Obamacare, and also think that when the law is ambiguous the courts should go with clear Congressional intent.”
Well Scott, I’d say your legal instincts are correct as far as the applicable principles of statutory construction. And, the DC Court of Appeals decision in Halbig that Pollack refers to would agree:
They wrote:
“On the merits, this case requires us to determine whether the ACA permits the IRS to provide tax credits for insurance purchased through federal Exchanges. To make this determination, we begin by asking “whether Congress has directly spoken to the precise question at issue,” for if it has, we must give effect to its unambiguously expressed intent. Chevron U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837, 842-43 (1984).”
http://www.cadc.uscourts.gov/internet/opinions.nsf/10125254d91f8bac85257d1d004e6176/$file/14-5018-1503850.pdf
I suggest you read the entire case. The court then went on to find that the language of the statute was *not* ambiguous. Believe it or not “State” means “State”, not “the Federal Government”. It also went on to find that, although the language of the statute was not ambiguous, the intent of Congress was.
It appears that the sponsors of this bill (in particular, Harry Reid who screwed up more than one thing in it) did not anticipate that states would opt out of creating and operating exchanges. That miscalculation was a political one; not necessarily the result of “ambiguous wording” of a statute.
As far was “judicial activism” (conservative or not) is concerned, that is, much like monetary policy, sometimes counterintuitive (in mis-usage it often depends on whose ox is being gored). In this case, the court felt that ignoring the unambiguous language of the statute would indeed be replacing the court’s role for that of Congress. A lot of folks call that restraint, not activism.
23. July 2014 at 10:03
I opposed Obamacare, and also think that when the law is ambiguous the courts should go with clear Congressional intent
I don’t think “judicial activism” makes sense in this context, all of the 5 judges that wrote opinions are just trying to make sense of a crappily-written law. Most laws are crafted by House & Senate committees, negotiated by joint committees and sometimes have floor debates (not in the Reid era, though). That’s the paper trail used to derive intent. In analyzing intent, you don’t rely on ex post facto statements, for obvious reasons. The ACA didn’t go through that process so we don’t have written commentary. So how do you derive intent?
Everyone involved, lawyers and judges, looked for “intent” within the logic of the statute itself. The statute contains incentives and penalties to encourage states to set up exchanges, leaving the Feds out of it. It is very common for Congress to legislate new government programs with hefty incentives (carrot & stick) for states to do all the heavy lifting. We know ACA had that feature because the administration complained that the Supreme Court destroyed its biggest incentive to the States by delinking Medicaid expansion from the establishment of state exchanges.
It’s reasonable then, within that context, to find that Congress intended the statute to mean what it actually said (tax credits for insurance purchased on an Exchange established by one of the fifty states or DC) and to purposefully omit credits for exchanges established by the Feds). The opposite conclusion is also reasonable: Congress just messed up, they didn’t mean to draft this as part of the incentive structure, they meant for everyone to obtain credits from exchange insurance.
No activism, just normal interpretation.
PS This is irrelevant to the legal arguments, but I look at it from my area of expertise: Suppose the IRS issued the regulation to follow the plain reading (Credit for state exchange only) but I filed a tax return claiming the tax credit for insurance purchased from a Fed exchange. Would an “intent” argument convince the IRS to reverse its regulation? Would the IRS at least waive penalties (i.e., the “intent” argument = “substantial authority”)? Would a legit lawyer write me a “more likely than not” opinion? Having done this long enough, the answer to all 3 is “No effin way”.
23. July 2014 at 10:58
I’m curious – what was the clear Congressional intent?
I’m pretty certain that the intent was to deny states subsidies if they didn’t implement an exchange. The denial of subsidies to Federal exchanges was the carrot to make sure all of the states implemented Exchanges. That is how they have addressed Medicare, 55MPH speed limits, etc, etc, etc. They can’t force the states to do anything – so they bribe them.
23. July 2014 at 13:12
Chris – if that was the congressional intent and the law was passed by the Dems, why are they pissed off with the decision (issued by Republican judges no less)? I don’t know what to say to a person who honestly holds the opinion you do. It’s so obviously wrong. I can’t imagine people are that dumb, so it is amazing the processes they will go through to attempt to find alternative explanations for supporting the things they want.
That’s some interesting work by Erdmann. People on the left are way too worked up about capital mobility. And it’s almost 100% idiocy all the way down. My personal pet peeve is ELoomis over at LGM who has written tons and tons on the issue, thinks he is an expert on the subject, and doesn’t even realize his left wing narrative approach to economics is simply insufficient to analyze what is happening, what the costs/benefits are and who they accrue to. It’s really taken the blog and commenting pool downhill.
23. July 2014 at 13:27
“We now know that there was much less malinvestment than people assumed, and I doubt bubbles even exist.”
You now know? Your theory cannot help but interpret recent events in that way. It isn’t borne from the data. It is what you use to understand the data.
A huge amount of malinvestment in a division of labor where investors have no way to know the supply of real savings to coordinate their actions other than what is revealed by free market prices and interest rates, that is only partially corrected, but then another, even larger amount of malinvestment is piled on top from even more central bank inflation and data fudging, where NGDP is irrelevant to whether or not and to what extent malinvestment takes place, such that “employment” falls, cannot possibly constitute information sufficient to rule out even more malinvestment nor an even bigger (real) bubble forming.
It is totally wrong to put all your faith in employment LEVELS. What matters is what employees are doing. What resources are they using up for production and their own consumption, relative to other employees (and employers). That is what has to be coordinated in order for there to be healthy economic growth.
The economy has become far more distorted than it otherwise would have been had we experienced a full correction post 2007. We are right now in the midst of the biggest economic bubble the world has ever seen. It is not even close. It dwarfs tulip mania, and the roaring inflationary 20s.
Replacing one bubble with an even greater bubble is evidence to you that bubbles may not even exist? Hello!
23. July 2014 at 13:28
Good post Scott. Erdmann’s stuff is very good. Just starting the 11-part series too.
Question for bubble skeptics (I am one): the Japanese stock market in 1989? Seems like the pre-eminent modern poster child.
P/E ratios were 90.
23. July 2014 at 13:35
*such that “unemployment” falls.
23. July 2014 at 13:38
“Established by the State” suggests to me that the Federal Exchange would qualify and the state exchanges may not. “The states” or “a state” could be any of the 50. “The State” means the sovereign authority.
23. July 2014 at 13:40
The original intent of the section, when drafted, was that it would force states to set up exchanges, just like how the Medicaid money was intended to get states to expand Medicaid.
It later turned out that they realized that unwilling and even some willing but incompetent or just small states would be better off with using a federal exchange. (Instead of the federal exchange being a second class option.) Exactly when Congressional and Administration intent changed, whether before or after they passed the law, is unct. But they never updated the law or language.
23. July 2014 at 15:10
I think the statute deliberately restricted the subsidies to state exchanges in order to put pressure on (Republican) state legislatures and governors to create exchanges. Democrats thinking that it was a great political dilemma for Republicans; stand on principle and you’ll have to explain to your electorate why you’re denying them subsidized health insurance.
Well, they got what they wished for.
23. July 2014 at 15:22
Man…I hope this ruling stands up. Do you know how awesome it would be for my side if California and New York get to keep their subsidies while red states lose them? Please don’t screw this up Republican SCOTUS.
23. July 2014 at 15:48
In cases where capital flows change noticeably, it is usually where institutional improvements in a developing economy lead to an expansion in the productive basket of goods they can supply, and so capital flows there to accommodate the new production …Production doesn’t move to where wages are low – it moves to where wages are rising.
I just read the same point made from a different angle in an interesting post by Michael Petti on why the existence of a savings glut need not need not result in a higher measured savings rate (the lack of which as to the ‘glut’ has been noted by Barry Eichengreen).
Quoting the famous identity…
“An economy’s total production of goods and services (GDP) can be defined either from the demand side (consumption plus investment) or from the supply side (consumption plus savings). By definition, in other words, savings is always exactly equal to investment.”
… he notes that the identity is always preserved with savings rising, but with an increase in measured savings/investment only if the constraint on investment has been lack of savings. If, as in many developing/third world nations the constraint on investment is something else (deficient social capital) so investment is prevented from rising anyhow, then as a matter of arithmetic the identity is equally preserved with an increase in consumption or decrease in employment/reduction of income and thus of savings. Thus as a matter of identity math it is not forced that a ‘glut’ in savings actually increase the measured savings rate.
He also observes that in more developed/faster developing nations with higher/rising levels of social capital, investment is much less obstructed so savings can be put to better use there, in which case savings can be expected to flow from the less developed to more developed economies.
http://blog.mpettis.com/2014/05/why-a-savings-glut-does-not-increase-savings/
It’s a long post and I certainly don’t agree with all of it — he himself says it contains something to offend every school of economic thought, giving a list of how…
http://blog.mpettis.com/2014/05/why-a-savings-glut-does-not-increase-savings/#comment-40023
… but I did find it interesting.
23. July 2014 at 16:01
Jonathan Adler and Michael Cannon make the case here;
http://object.cato.org/sites/cato.org/files/articles/cannon-adler-health-matrix-23.pdf
that there are 7 express statements in the ACA referring to subsidies (and their companion taxes) being authorized by Section 1311. Section 1311 is what authorized the creation of state exchanges.
The Federal run exchanges are authorized by Section 1321 of the ACA. There are zero references to subsidies available to people buying insurance under Section 1321 in the Act.
23. July 2014 at 16:06
“By definition, in other words, savings is always exactly equal to investment.”
I think that’s only true for the global economy as a whole, given that national economies are not closed.
23. July 2014 at 16:17
Jim Glass,
That was an interesting post. I do think he comes at the issue in a way similar to me, in a lot of ways.
This is the comment I tried to leave there:
Great post. One (large) quibble I have, though, is that it seems to me the idea of housing being a bubble is simply asserted. I look at the whole issue much as you do, but these effects, including the price of real estate related to long term real interest rates, seem to be functioning in a perfectly sustainable way. The popping of the bubble was unnecessary. Real estate prices need to be high, and the problem is that nobody, including the Fed, is comfortable letting them be. A related quibble is that part of the savings glut isn’t due to income inequality, but is instead the result of a vibrant middle class of baby boomers who have a problem of mismatched personal production and consumption, and they need a large amount of low risk savings in order to consume in 30 years when they will not be productive. Real estate might not be perfectly efficient for bridging this gap, but it may be the best we can do. The fact that this gap is being bridged through low interest rates and related high real estate prices seems perfectly reasonable, and sustainable, to me.
23. July 2014 at 18:40
A few points:
1. I’ve read the disputed language, and it definitely looks ambiguous to me. And I opposed the law. It also looks ambiguous to lots of other really smart people.
2. The law was passed with 100% Dem support, and 0% GOP support. Their intent was obvious.
3. Claims that the Democratic intent was what the court ruled seem preposterous to me. If true, the Dems should be jumping for joy with the ruling.
4. It was always understood that some states would opt out. Show me the quotes of multiple Democratic politicians saying their intent was to deny poor people subsidies from the federal exchanges. If you can find a bunch of such quotes I’ll change my mind.
I think it is a bad bill. But if we are going to have a democratic system the majority party has a right to enact bad ideas. Even bad ideas they learned from Mitt Romney. Then the voters can and should punish them for it later. This bill will have ZERO impact on how the US health care system looks in 30 years. It doesn’t even solve the problem of 10s of millions being uninsured. There will be many more “reforms” by both parties, and we’ll end up edging toward the position we would have been at without the bill.
23. July 2014 at 23:20
“I think the statute deliberately restricted the subsidies to state exchanges in order to put pressure on (Republican) state legislatures and governors to create exchanges. Democrats thinking that it was a great political dilemma for Republicans; stand on principle and you’ll have to explain to your electorate why you’re denying them subsidized health insurance.
Well, they got what they wished for.”
Most likely correct. The same thinking went into the expanded Medicaid program enacted by the same statute. States could not be forced to participate, but the sponsors of that bill were hoping that states would sign on to it for fear of the political backlash for foregoing “free money”.
Scott, reasonable people can agree or disagree on what makes language ambiguous, but, nevertheless, to assess your degree of reasonableness, I’d be curious as to your (unambiguous) statement as to which language in that statute you think is ambiguous.
24. July 2014 at 00:09
I had thought that the Congressional intent line supported the statutory language, in that they wanted to use the subsidies as a way to club recalcitrant states to play ball. I haven’t seen citations either way on the subject, so perhaps I’m thinking wishfully.
24. July 2014 at 04:22
We have learned this week that investors had undervalued Chipotle by 12%, Intuitive Surgical by 15% and apparently Facebook by 10%. Is there any reason why such miscalculations in valuation cannot occur to the downside as well? Yet corrections to the downside can prove ruinous if the asset is purchased by debt. Suddenly a situation that appeared financially secure is no longer such a sure thing.
Thing is, Scott, no one knows the true value of things. So when real estate prices slide all the promises and predictions of a rebound are meaningless. What matters is the ability to balance the books. When the market makes it call everyone wants to find a seat. But some won’t get one and they will be liquidated.
Scott, you imagine a world where the balancing of the books never has to happen, where the market never gets to make a call. You imagine a world where there is no aggregate financial risk. Where there is no imbalance between debt & equity and no conflict in short-term and long-term expectations. Yours is an imaginary world. It is no less real than are Never-Neverland and Narnia.
The history of the world is replete of examples of large human populations embracing ruinous ideas, whether they be social or financial. If your tautology demands the absence of malinvestment that is a powerful indicator your tautology is false.
24. July 2014 at 04:43
Bubble: When humans imagine a future much brighter than the world can actually deliver
Bust: When humans imagine a future much bleaker when the world actually is.
Scott, your tautology of “no bubbles and no busts” requires a world where the expectations of humans are always “just right”.
Just know that in the real world, when Goldilocks meets the bears, she gets eaten.
To borrow from Sergeant Esterhaus, “Let’s be careful out there”
24. July 2014 at 04:48
Obamacare: the intent was CRYSTAL CLEAR.
Just like Federal highway funds in 1984-86, Congress intended to withhold $ unless the states bent to their will. If states didn’t raise drinking age, set up exchanges, in the face of the financial threat, that was up to them.
The threat in this case was non-credible.
Maybe you were being sneaky Scott? Certainly, you don’t like Federal threats to states. let alone, pretending the mere threat is THE LAW.
NOTE: Obama in February made the same Executive threat to the Governors on National Guard if they complained about Federal spending publicly.
———
Long term unemployed
I think this is a bit of tempest in teapot.
1. Extended benefits do promote less work.
2. Time off does harm skills.
3. As such, the debate is simply about how fast skills age. Which is actually a debate about the technology curve.
4. FACT: technology will always find value in humans if their labor it priced properly. The McDonalds cashier, before replaced by a robot, doesn’t need to be able to do math or read.
Surely a faster growing economy will add jobs.
But the quite / hires in JOLTS are way down. It used to be that unless we saw 4M turns a month, we didn’t gain jobs. Now we are gaining small numbers but with less turns.
This is the contradiction I see: tech is toppling old systems faster, improving life faster, but we aren’t getting more job turns.
Does that help prove digital deflation?
24. July 2014 at 06:31
Scott – if the intent in 2010 was to entice red states to setup exchanges and the belief was the carrot would work, why is it absurd to say that they want to revise their ‘intent’ retroactively to get the outcome that they really want?
I understand that the intent of PPACA was to get subsidized care to certain people. But a specific mechanism was used to accomplish that goal – by enticing individual states to create exchanges. The creators of the law truly believed that it would be more popular than it was. Which matters more – the overall intent on an outcome or the intent of each section of the mechanisms created to obtain that outcome?
Congress creates laws all the time that didn’t turn out the way that they expected – can government then, by fiat, impose any new rule that they want to get around the unintended consequences?
I don’t see how the language is ambiguous. Contracts, regulations, laws, etc. use defined terms (which are capitalized in the text) to get around the ambiguity that normal language can create.
The law also explicitly defines State in section 1304: “(d) STATE.””In this title, the term ”State” means each of the 50
States and the District of Columbia.”
Finally, given how little debate there was on PPACA. Given that lawmakers were voting on the thing without having ever read the actually law they were passing it is unsurprising that lawmakers didn’t comment on this particular section of the law. The general belief, if I remember correctly, was that it would be so wildly popular that they could tweak and tune it after the fact without any resistance.
24. July 2014 at 06:37
Remember that Congress setup Medicare expansion in PPACA in the exact same way: add all of these benefits to Medicare or you lose ALL Medicare subsidies. Surely Democrats didn’t intend poor people on Medicare to lose all of their benefits because a Republican state refused to expand Medicare to comply with the new law. They expected all of the states to fall in line and take the free money.
SCOTUS ended up striking that down saying that the law was too coercive and that Congress couldn’t tie incremental changes to a law to all funding for the full program. I don’t recall Democrats every trying to argue that Congress didn’t really intend poor people to lose their subsidies.
24. July 2014 at 06:53
Chris – the difference is that there was plenty of discussion at the time about the coercive intent of the medicare provisions.
Again, smart or not, if a person is willing to invent explanations for positions they want to argue for, they lose intellectual credibility. That’s what you have going on here.
24. July 2014 at 07:00
Chris,
I think you are correct with the exception of your reference to Medicare. Small point, but I think you meant Medicaid.
Yes, and this is relevant to Scott’s “point 4”. Of course, the authors of that bill did not “intend to deny a bunch of poor people subsidies”. But, that’s not the point. The point in construing the statute is to interpret what the plain meaning is (and if ambiguous, what Congress intended it to mean). It is quite possible—indeed likely—that Congress intended the statute to have the plain meaning it has, i.e., that subsidies be granted only to those enrolling in exchanges set up by the states (as clearly defined elsewhere in that law). Congress may well have been wrong (and indeed they were) as to what the *effect* of all that would be, but that’s not for courts to re-construe a poorly designed statute or ill-devised policy. That would truly be “judicial activism”.
Imagine that Congress passed a law authorizing 99 weeks of unemployment benefits, thinking it would have no effect on unemployment rates. Low and behold, it turns out that the law, contrary to Congressional expectations,is shown to increase, and not insignificantly, unemployment. Should the courts step in and interpret 99 weeks to mean 66 weeks, or whatever, to rescue Congress from its faulty judgement? Laws very often have consequences that Congress did not “intend” or foresee, but that often has little to do with what they meant or hoped when a statute was written.
24. July 2014 at 07:24
‘Imagine that Congress passed a law authorizing 99 weeks of unemployment benefits, thinking it would have no effect on unemployment rates. Low and behold, it turns out that the law, contrary to Congressional expectations,is shown to increase, and not insignificantly, unemployment. Should the courts step in and interpret 99 weeks to mean 66 weeks, or whatever, to rescue Congress from its faulty judgement? Laws very often have consequences that Congress did not “intend” or foresee, but that often has little to do with what they meant or hoped when a statute was written.’
So let’s imagine that congress wrote a law saying, ‘In keeping with our expectations of long term employment stability, the executive shall extend unemployment benefits to 99 weeks.’
At first the executive interprets that to mean they should extend unemployment benefits to 99 weeks. Then two years later they decide, based on what happened in the intervening time, that it should be 66 weeks. Why should scotus step in? Congress can pass another bill if the executive is not keeping up with it’s expectations.
It seems the ‘plain text’ argument rests on exactly how plain the text is. But, in this case, the text seems complex.
24. July 2014 at 07:31
Vivan – thanks, yes I meant Medicaid.
mpowell – Stating that this is inventing an explanation is intellectually shallow. And projecting intent on the argument is even worse. I personally don’t care how the case turns out – I don’t believe that PPACA is sustainable and don’t think that legal methods to gut it are even necessary.
This is a defensible interpretation:
1. The law says that subsidies go to people that use exchanges that are established by States (a defined term)
2. The law makes no mention of subsidies to people that use a federal exchange.
3. State is explicitly defined as the 50 states and DC in the law itself.
4. Congress has a long history (including in this specific law) of using the carrot of monies to the states to entice the states to participate in enacting federal programs.
It doesn’t take a huge leap of faith to think that this is exactly what Congress meant to do. I don’t think that the people arguing that the subsidies were intended to go to everyone are being disingenuous either – I just think that they are wrong when it comes to the law.
It was a poorly constructed, sloppy law. I don’t think you can just retroactively fix bad law with clever interpretations. If things don’t work the way that you are expecting them to the right thing to do is to fix it with amended language. Congress, at any time, can simply fix it if they can find enough votes (and I think that it should be fixed) – this whole lawsuit is about statutory interpretation not Constitutional law.
I personally believe that holding govt agencies to the plain meaning of the text is a far more important principle than having them just guess what the intent was and giving them wide latitude to do whatever they want. Unfortunately, much of the world disagrees with me and care far more about getting the outcome that they want regardless of the means to achieve it.
24. July 2014 at 07:34
‘ I’ve read the disputed language, and it definitely looks ambiguous to me.’
I, like Vivian, would like to see Scott point out that ambiguous language.
24. July 2014 at 07:44
‘It was a poorly constructed, sloppy law.’
It was the only way they could pass it. Thanks to Scott Brown winning Ted Kennedy’s Senate seat, the Dems were limited in their options. It was either this ‘sloppy’ law or no health insurance law at all.
Something Nancy Pelosi recognized almost explicitly, when she admitted that ‘We need to pass it to find out what’s in it.’
24. July 2014 at 08:11
Patrick – I totally agree with you, it was their only option. But there are consequences to that right? You can’t just wish away the sloppy parts by saying ‘if we had more time we would have done it better’.
As an aside – are you the same Patrick Sullivan that used to frequent starcitygames a decade or so ago?
24. July 2014 at 08:19
CNBC: Obama live on the global economy with Steve Liesman at 5 PM ET.
Economic enlightenment! 🙂
24. July 2014 at 08:27
Here’s the problem for the ambiguity-philes;
———-quote directly from PPACA————-
SEC. 1401. REFUNDABLE TAX CREDIT PROVIDING PREMIUM ASSISTANCE FOR COVERAGE UNDER A QUALIFIED HEALTH PLAN.
…. ‘SEC. 36B. ….there shall be allowed as a credit against the tax imposed by this subtitle….
for …the taxpayer, the taxpayer’s spouse, or any dependent (as defined in section 152) of the taxpayer and which were enrolled in through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act
———–endquote———
It would have been a simple matter to add ‘and 1321’ [creating the federal exchanges] to that.
But that probably would have opened the bill to a filibuster and/or to CBO scoring for its effect on the formal Federal Budget.
24. July 2014 at 08:37
Show me the quotes of multiple Democratic politicians saying their intent was to deny poor people subsidies from the federal exchanges. .
You could read the arguments inNFIB v. Sebelius, where the administration defended §1396c of the ACA that threatened a state with loss of “all of its federal Medicaid funds” if it didn’t conform to expansion. The Democrats defended that “intent … to deny poor people subsidies” as a critical part of the ACA architecture. Fortunately for poor people in those states, Kagan, Breyer, Roberts et al slapped them down.
The plain language of the ACA follows that statutory architecture. You cannot find one word in the ACA that permits credits to Federal exchange participants. The IRS regulation wouldn’t be necessary if you could, right? I’m not saying that the IRS interpretation is crazy, especially after the NFIB, but they were forced to “interpret” because the ACA itself doesn’t authorize the granting of credits and imposition of new taxes in Exchangeless states.
24. July 2014 at 11:11
“The IRS regulation wouldn’t be necessary if you could, right?”
Well, Bababooey, that does raise an interesting little angle to this discussion that is too easily overlooked.
The regulation you are writing about, and the one that is subject to the extant litigation, is 26 C.F.R. § 1.36B-2(a)(1) (an IRS reg). Despite the (what I believe, anyway) plai, unambiguous language of the statute, the IRS sought fit to ignore that plain language and extend, by regulation, the subsidies to those entered on *federal* exchanges.
It should not be necessary to summarize here the Constitutional separation of powers between the Legislative, the Executive and the Judicial branches, but I’ll do so here briefly, anyway, as useful background. Congress writes the laws. The Executive branch’s task is to faithfully execute those laws as written by Congress. Part of the Executive branch power (Treasury and the IRS are part of the Executive branch) is to write regulations implementing those laws, but such regulations need to be consistent with those laws (in this sense, the task of the IRS would be similar to the courts now considering the very same issue).
PPACA was passed March 23, 2010. More than two years later, on May 22, 2012, the IRS issued the above-reference regulation “interpreting” the PPACA to allow subsidies to those on federal exchanges. A very implausible interpretation would be that’s what the statute said when it was drafted and passed, but a much more plausible explanation is that as the situation subsequently developed, it became apparent that the original plan was not working. Thus, the need for a departure from the clear meaning of the statute by an agency controlled by the sitting president and the one whose signature policy initiative was at stake.
I am not so naive as to think that the Executive branch has never before “encouraged” fanciful interpretations of statutes to suit its own purposes (even though, again, the duty here to faithfully carry out laws is to Congress, not the President). But, it would sure be interesting to be able to read the communications between the White House and the IRS on this one (if those hard drives still exist). But, recent history has shown that this particular president with respect to this particular legislation does not feel particularly bound to “faithfully carry out” laws passed by Congress. Just the other day, the Executive Branch decided, in the last in long of departures from “legislative language and intent” that, as things subsequently developed, they would just forget about requiring territories to be covered under the legislative scheme.
Also related to this were a few comments I’ve read here and at Econolog to the effect that “couldn’t Congress just tell the IRS what it meant”? Well, yes and no. Congress is supposed to speak with one voice. They do that by passing legislation and in doing so developing in advance a legislative history. They don’t do it by subsequent communication (by select members) that would directly contradict the original one. The fact that a majority of Congress passed a law doesn’t mean individual members can dictate to those writing regulations as to what the statute was supposed to mean. That is done by subsequent legislation, perhaps here, a technical corrections bill. Why *didn’t* Congress do that? Because they didn’t have the votes and to even try would have meant admitting the law needed to be changed. So,it seems, the only solution was to get a compliant IRS to go along on a political mission.
These numerous deviations from the statutory language seem to be based on the hope that:
1. Nobody will have “standing” in the courts to sue; or if they do
2. Either a partisan court will side with them, or a non-partisan court will do so, not because of what the law says or does not say, but because the consequences of not upholding the disputed law would create (additional) chaos.
Watch the administration and elements of the media try to reinforce the case on the latter with a drumbeat of messages (like the earlier SCt case on the same statute) that 1) if the DC Ct of Appeals is followed, it is because of a partisan SCt bench; and 2) Not upholding the IRS reg would have disastrous consequences.
Neither argument has any relevance to what the law actually says and diverting attention from that is exactly what is hoped for..
24. July 2014 at 11:22
Vivian, This, from Ezra Klein:
“The government’s argument is that Section 1321, which sets up federal exchanges, says that when states fail to construct an exchange the federal government shall “establish and operate such Exchange within the State and the Secretary shall take such actions as are
necessary to implement such other requirements..”
The key word there is “such”: the Obama administration holds that the clear intent of that line was that a federal exchange counts as a state exchange for the purposes of the law. That may be a bit confusing “” but given the context of everything else in the law, it’s clear enough.””
But I view the laws ambiguity is a minor point. By itself, that would not be enough. But the law’s supporters clearly stated that the subsidies were to apply to federal exchanges. That was also my assumption when I followed the debate. That was the CBO’s assumption.
If Congress intended what the court suggests, they should welcome the ruling.
Overall, I find “intent” statements from the laws supporters to be a tad more persuasive that “intent” claims from people who want Obamacare to go down in flames.
Dan, I hope you realize that the views you attribute to me are not at all my views. The alternative is too depressing to contemplate.
Chris, If Congress made a threat and then did not carry through they’d never be able to make another threat. They are stupid, but I have a hard time believing they are that stupid. And if they really were making a threat, it would have been in their interest to say so. But instead back in 2012 they were saying people WOULD get subsidies via the federal exchanges. How is that a threat? How does that encourage states to set up exchanges?
Patrick, You said;
“It was the only way they could pass it. Thanks to Scott Brown winning Ted Kennedy’s Senate seat, the Dems were limited in their options. It was either this ‘sloppy’ law or no health insurance law at all.”
I agree with that, but your later comment on CBO scoring confuses me. The CBO did assume federal exchanges would be subsidized.
Bababooey, The Medicaid case seems completely different to me. The threat interpretation was clear to me at the time. On the other hand if you had asked me back in 2010 whether people would get subsidies via federal exchanges, I’d have said “of course they would” Why would they not get them; the Dems clearly wanted that, so it must be the correct interpretation of the law. That’s not to say there wasn’t a typo in the law, but they clearly intended subsidies via the federal exchanges.
24. July 2014 at 11:24
Great blogging Vivian!
24. July 2014 at 11:33
Scott – I wouldn’t go as far as to say that Congress isn’t stupid 🙂 They cave on all sorts of threats when it serves their purpose (not enforcing employer mandate is the one that comes to mind immediately).
I get the other side’s argument – it is completely defensible, as stated earlier I don’t really care which side is ‘right’ I just get irritated when the other side (pick a side, doesn’t matter) thinks that the opposing arguments are “absurd” or morally vacant or intellectually bankrupt all while being oblivious to their own biases that could be called the exact same thing…
24. July 2014 at 11:56
Thanks, Scott.
I don’t find “enrolled in through an Exchange established by the State under 1311” ambiguous at all. I agree that intent as stated in a statute’s legislative history is relevant, especially that of the sponsors of the bill. But, can you point to any such statements before the bill was enacted to that effect? Self-serving statements after a bill has passed Congress are, for what I hope are obvious reasons, not part of the “legislative history” and thus are considered irrelevant, especially when they contradict the plain language of the statute (much like Executive “signing statements”). I think you may be giving too much credit and credence to after-the-fact statements.
24. July 2014 at 21:12
Gotta love reason.com for digging up that video. Isn’t Gruber the ACA maximalist defender among economists?
25. July 2014 at 06:14
Well, looks like I scooped Kimberly Strassel on that IRS angle:
http://online.wsj.com/articles/kim-strassel-the-obamacare-irs-nexus-1406244677
25. July 2014 at 13:40
Chris, That’s the problem, each side thinks the other are idiots.
Vivian. How many supporters of the ACA have said they intended federal exchanges to be unsubsidized? I don’t know of any.
25. July 2014 at 13:43
“Vivian. How many supporters of the ACA have said they intended federal exchanges to be unsubsidized? I don’t know of any.”
Well, for starts, there is Jonathan Gruber, but of course you don’t believe that because he mis-spoke, consistently,
For the rest, why should they? It is clearly written in the statute.
25. July 2014 at 13:55
Scott,
Perhaps you are thinking that when a statute is clearly worded the fact that sponsors of a bill don’t contradict that clear wording is evidence that it must mean something other than the clear wording. If so, that would be a first in statutory construction.
25. July 2014 at 14:13
Scott,
Just to be clear about Gruber in the comment above—I’m just pulling your chain. I couldn’t resist now that he’s been shown to be a serial, but consistent, mis-stater. Even Vox is backing away from supporting him now. The current line is, as I’ve consistently stated here in comments, is that what he said and now says isn’t really worth a nickel in this *legal* dispute. First, he’s not a member of Congress; and second, what he had to say was after the bill was passed. That’s the best that can be salvaged from this very embarrassing situation.
I can understand your reticence in not trying to defend his serial misstatements as unintentional slip-ups and that strikes me as a wise decision.
26. July 2014 at 07:39
Vivian, I hereby defend his serial misstatements as unintentional slippups!!