Rdan

How does Congress keep track of such things, if at all, and again who reads these things except those willing to be wonks or lobbyists?

Sen. Chris Dodds Proposed Financial Overhaul Bill can be found at the link.

Huffington Post notes that de novo is back from Treasury:

Despite bipartisan consensus on Capitol Hill that the size and interconnectedness of major financial institutions poses a grave risk to the system as a whole, Senate banking reform legislation includes a provision that will help them get even bigger. The provision -- long desired by the big banks -- would allow them to open new branches in states regardless of local laws. This is known as de novo branching. The provision was first put forward by the Treasury Department in the financial regulation reform bill that it sent to Congress. House Financial Services Committee Chairman Barney Frank (D-Mass.) initially included the provision in his bill, but removed it after a Democratic committee member, Rep. Alan Grayson of Florida, asked that it be taken out. [...] But weeks later, when Senate Banking Chairman Chris Dodd unveiled his new financial reform package, the de novo language popped up again -- a verbatim copy of the Treasury language. That had observers scratching their heads at the resilience of the language. The conformity to Treasury's wording was no coincidence. "That was just something we pulled straight from the administration's proposal," Kirstin Brost, a spokesman for Dodd's banking committee, told HuffPost. ...

Gen. Anthony Zinni, USMC, (Ret.) Remarks at CDI Board of Directors Dinner, May 12, 2004

And what I thought I would do tonight is go through the ten crucial mistakes to this point that we've made. Because I think it helps frame what, in fact, has happened over time ... and is going to be the first part of that history. And I will conclude with maybe some thoughts on the way ahead, at least from my point of view.

Gen Zinni was CentCom Commander prior to Tommy Franks and in this days of demanding that we listen to the Commanders no matter what, some wonder why nobody wanted to listen to Tony Zinni in real time. There is a lot of selective memory going on about the period between Sept 11, 2001 and March 20, 2003 and equally about the events in Iraq and Afghanistan prior to the Surge announced in January 2007. There has been a tendency towards triumphalism among war supporters along the lines of "The Surge Worked" which totally ignores that Army Chief of Staff Shinseki was effectively sacked in 2003 because he testified to Congress that more troops would be needed, and that Zinni's reaction was in point 8 of the linked speech:

The eighth problem was the insufficiency of military forces on the ground. There were a lot more troops in my military plan for operations in Iraq. I know when that plan was presented, the secretary of defense said it was "old and stale." It sounded pretty new and fresh to me, and looking back at it, now because there were a hell of a lot more troops. It was more the (Eric) Shinseki model that I think might have been a hell of a lot more effective to freeze the situation. Those extra divisions we had in there were not to defeat the Republican Guard, they were in there to freeze the security situation because we knew the chaos that would result once we uprooted an authoritarian regime like Saddam's.

If Rumsfeld had just listened to his Generals we might not have had to waste four plus years and thousands of Americans dead that were in large part the result of going in too light the first time. Bush/Rumsfeld apologists themselves have a lot to apologize for. You screwed up and trusted the Neo-Cons. Bad move.

by cactus

Taxes and the Private Sector, Part 2: Would You Like Some Lags with That?
This post follows up last week’s look at how taxes on the private sector affect growth in the private sector. In that post, the data simply refused to cough up anything that could be construed as an excuse for someone to say “Lower taxes produce faster growth.” (Go figure. This must be the 319th time I’ve looked at the topic, each time with different data, and I still can't figure out how to justify the free lunch story without some serious sleight of hand.)

In last week’s post, I focused on the “private sector” GDP – that is, GDP subtracting off the government’s contribution to GDP. There are several reasons to do this. Only the private sector pays taxes, so it makes more sense to look at taxes paid as a share of the private sector GDP than it does to look at taxes paid as a share of GDP as a whole. Also, an unscrupulous government can pull a Reagan – that is, it can boost GDP by running up the public debt and spending that money. After all, government spending is a component of GDP, so anything borrowed and spent provides a one-for-one increase in GDP. Focusing on the private sector GDP mitigates this problem.

More below the fold...

by Bruce Webb

In the course of an exchange between me and a fellow Bear, the question arose if social spending had a crowding out effect on other social spending. In particular if we have a small problem in Social Security and a big problem in providing health care would solving the first problem put the solution of the second in danger. I say probably yes, he suggests the answer is no because we get no such effect in military spending. Well feel free to weigh in on this in comments, but my reason for arguing the opposite was summed up by Maj. General Smedley Butler in 1933.

More below the fold...

Rdan

No Sweat adds another facet to the crisis in Dubai...mobility of labor and wages. I cannot imagine what conditions are like to produce a strike in this city. If the players default in high finance, do they go to debtors' prison like most everyone else?

An estimated 700,000 Asians, mostly from India, Pakistan and Bangladesh, work as construction workers in the UAE, an oil-rich Gulf country experiencing an economic boom where only some 20 percent of the four million population have citizenship.

Sign of the times for the headlong pursuit of bargains?

Robert Waldmann

Among experts, there is a widespread view that people in the USA support social insurance an oppose welfare. It is a fact that they support social security old age and disability pensions and hated AFDC. It is suspected that describing social security as a pension plan with mandatory participation is part of the explanation of this. Therefore, some (including the Clinton treasuries first assistant secretary for policy analysis Alicia Munnell) argue that it is important to preserve some link between contributions and benefits in the social security system.

I think that we have performed and experiment which refutes this hypothesis.

It is called Medicare. Medicare part A is a social insurance program like social security old age and disability pensions. Medicare part D sure isn't – it's an unfunded entitlement. I don't know about parts B and C (I think they are basically funded from general revenues).

That's the point. Compared to many angrybears I am very ignorant about Medicare, but I suspect that I know about as much as the median voter. If the form of financing had such an important impact on public opinion, why doesn't the public know more about the form of financing ?

My reading of the evidence is that Medicare A through D is very popular, that different approaches to financing have so little effect on public opinion that it can't be detected.

Frankly, I think this is proof that the social insurance hypothesis is false. At least I don't see how the evidence could possibly conceivably be any stronger.

We are now almost 24 months into the Great Recession. While many expect NBER will eventually say that The Great Recession ended several months ago, they have not yet.

By contrast, the recession that began The Great Depression, per NBER, lasted 43 months. It seems only fair to compare the two, so I trust I can be forgiven for not yet having declared The Great Recession over.

One of the problems is that of official government data. Many of the statistics we now consider "standard" were first tracked as part of the government funding and jobs created by FDR's Administration. (The irony of multiple economists and idiots arguing that the data shows that those programs should never have happened should not be lost on the reader.)

For an examination of Wall Street, though, reasonable proxy data is available. With some issues noted, we can use the change in Real Prices as a proxy. Comparing the two periods produces:

Fairly comparable. The market had a better six months prior to the October 1929 crash, which is rather neutralized by the drop about five months after the first Depression Recession begins, which is steeper than the comparable drop in the current period.

In spite of all the support for the banking system, the recovery is fairly comparable to the one from the Great Depression—at least so far.

Below the fold, let's look at Main Street.

More below the fold...

Richard Baldwin at VoxEU introduces a new book on “great trade collapse” before the WTO meeting occurring shortly.

Re-posted with attribution:

The Great Trade Collapse

World trade experienced a sudden, severe and synchronised collapse in late 2008 – the sharpest in recorded history and deepest since WWII. VoxEU today posts a new Ebook – written for the world's trade ministers gathering for the WTO's Trade Ministerial in Geneva – that presents the economics profession's received wisdom on the collapse. Two dozen chapters, written by leading economists from across the planet, summarise the latest research on the causes of the collapse as well as the consequences and prospects for recovery.

The world’s trade ministers gather at the WTO next week just as the world’s trade is starting to recover from the “great trade collapse” – the sharpest drop in recorded history and deepest since WWII.

Vox has today posted an Ebook “The Great Trade Collapse: Causes, Consequences and Prospects” that aims to tell the world’s trade ministers what economists’ know about the trade collapse.

The Ebook can be downloaded for free from http://www.voxeu.org/index.php?q=node/4297

Hard copies of the book may be ordered by emailing Anil Shamdasani: AShamdasani@cepr.org.

Establishing consensus on the cause

The two dozen chapters establish a consensus on what caused the collapse. In a nutshell, it was caused by the sudden postponement of purchases, especially of durable consumer and investment goods. Trade fell far more than GDP, since the demand shock was amplified by “compositional” and “synchronicity” effects.

More below the fold...

Have a good Thanksgiving folks.

From all the Bears

Today's release by the Federal Reserve Bank of Dallas of October's Trimmed Mean Personal Consumption Expenditure gives us a chance to check this "alternative measure of core inflation."

The clearest thing is that it does what the FRB Dallas intends: generally reduces the measure of inflation:

For the graphic above, any value above the line shows where the 12-month Average of the Trimmed Mean PCE is greater that the Annualised CPI for that same period. With few exceptions, those points are places where the actual CPI is negative for the period. (Note also that all of periods where CPI is over 5.0-5.5% are below the line. While the 12-month average of Trimmed Mean PCE has a maximum of 8.7%, while CPI reaches slightly over 14.75% in the same time period.)

So the natural next step is to compare it to a measure of Consumer Sentiment. Let's do that below the fold

More below the fold...

by Bruce Webb

News that the Republicans are pushing two bills that would establish a 'Bi-Partisan Commission' to 'reform' Social Security and Medicare are stirring up a debate which mostly had run cold. And one myth is bubbling back to the surface, the one that claims that Reagan simply used the Greenspan Commission to generate "huge surpluses" for Social Security to fund tax cuts for the wealthy. Never happened. There were no huge Social Security surpluses under either Reagan or Bush I, instead the 1983 reform set in place a mechanism that would slowly rebuild the Trust Funds back to their mandated level. And it worked, in 1993 Clinton entered office with Social Security sitting with a Trust Fund ratio of just over 100 meaning that it met the Trustees' test for actuarial balance. But the overall outlook for Social Security actually deteriorated from 1993 to 1996 and the large surpluses that started in 1997 and accelerated through 2004 were neither planned for or anticipated by the 1981-83 Commission. They happened and on paper largely pre-funded Boomer retirement but this was not the product of any pre-existing plan. Inspect the numbers for yourselves.

http://www.ssa.gov/OACT/TR/2009/VI_cyoper_history.html#159726

This myth is particularly dangerous because it plays into the movement conservative message that you can NEVER trust big government, maybe ESPECIALLY when it is in Republican hands. Every second spent bashing Reagan or Bush II over Social Security is a second devoted to selling the message that 'Big Government is the Problem'. Yes for those of us who are accused of being infected with BDS or delight in mocking St. Ronnie all of this is good fun. But it is unproductive good fun if your intent is to keep Social Security out of the hands of the vultures. Reagan in 1981 and Bush in 2001 and 2005 DID try to kill Social Security. They failed, every penny is STILL exactly where it is supposed to be. Insisting that they some how succeeded in raiding the pantry just plays into opposition hands. Knock it off. If that is you want that retirement check.

By Spencer

The weekly initial unemployment claims are widely reported and various charts show how they have been falling since the peak.

But it is hard to compare the drop in claims this cycle compared to after other severe recessions in the standard charts showing claims over time.

So to make such comparisons easier I though readers might find a chart showing claims after the 1974 and 1982 recessions and this recession on the same scale.


Everyone can draw their own conclusions, but I am surprised to find that the drop this cycle is almost identical to the drop after the 1981-82 recession.

by Tom aka Rusty Rustbelt

Comparative Effectiveness Research (CER) may have inadvertently lost credibility even before health care reform is actually launched.

CER is the darling of the government-dominated health reform movement (not a government take-over, to be clear). The use of evidence-based medicine when combined with cost-benefit analysis has the potential to save a great deal of money while better serving the patients. Many see downsides though; too rigid protocols and interference with physician judgment, or the dirty “R” word, rationing.

The U.S. Preventive Services Task Force recently released a study on various breast cancer screening modalities, recommending more limited screening protocols, particularly delaying routine mammography until age 50 (except in women with unusual risk factors).

Kah – boom!

USPSTF points out film mammography does cut mortality, with the greatest reductions in women over 50, with the best results in the age 60 – 69 cohort. Film mammography does carry a risk of false positives and the pain and inconvenience of unnecessary biopsies.

USPSTF also recommends ceasing mammography on women over 74, citing a lack of reliable evidence of reduced mortality.

There was a huge backlash from women, physicians, cancer activists and some health care associations.

USPSTF also recommends against teaching women to perform ”breast self-exam” (BSE) which has been a standard tool for decades. More backlash.

USPSTF does point out that digital and MRI mammography do not show, at this time, significant improvement over film mammography, but do have greater costs.

None of the conclusion appear to have been made on strong and startling statistics, but on think pros and cons, as one might expect from quants and scientists.

Women apparently want a little less quantitative analysis and a lot more consideration.

USPSTF report

cross-posted at Health care think tank

Ken Houghton follows up on his previous post.

One of the few honest statements that came out of the Reagan Administration was in late 1982, when the Volcker policies were working but the market was still spooked. "People expect that inflation will be higher than it will be."

The above compares the University of Michigan's Consumer Sentiment (prediction of the inflation rate one year forward) with the actual inflation that occurs over that period.

Several things are apparent.

1. The official inflation target was not really managed well from 2004-2006. (Alternate explanations welcome; I can think of a few.)
   
2. Consumers assumed the Fed targets were in effect during that period.
   
3. Consumers have consistently overestimated inflation from 2007 onward—and there is no sign of that changing.
   
4. There has been deflation since the beginning of 2009.
   
5. People still believe the Fed target can be hit.

Combining those last two leads to another clear conclusion that I hope has an alternate explanation: Consumers continue to try to believe the Fed target, even in the face of policy failure.

This may explain the "bizarre complacency"; people believe the economy is in a much different place than it is.

But for how long can they ignore the evidence?

To Be Continued...

Rdan

Firedoglake presents a well written piece on US and Chinese trade policy:

China’s Industrial Policy vs. US Random Behavior

The U.S. China Economic and Security Review Commission has issued its annual report {giant .pdf}. Robert Borosage of the Campaign for America’s Future hosted a conference call for the Co-Chair of the Commission, Carolyn Bartholomew, and Clyde Presotwitz of the Economic Strategy Institute, who was U.S. Trade Representative under Reagan. The call offered these experts an opportunity to talk about China’s industrial policy.

Prestowitz said something that focused the entire issue for me. He pointed out that labor is not a significant factor in chip manufacture. Why then are so many chip manufacturing facilities located in China? He says it’s because the Chinese wanted these as part of their industrial policy, so they seized the land, built the infrastructure, provided low-cost loans, granted energy and water subsidies, trained a work force, and gave the manufacturers tax breaks. Now they offer more subtle incentives, funding for research and development, refunds of the value added tax and space in industrial parks. As Prestowitz said, the plants are there for financial reasons.

This is Chinese policy. They want to grow their economy by attracting foreign capital and foreign technology. They intend to maintain state control over crucial industries.

China’s overall industrial policy … is characterized by three main parts: (1) the creation of an export-led and foreign investment-led manufacturing sector; (2) an emphasis on fostering the growth of industries such as high-technology products that add maximum value to the Chinese economy; and (3) the creation of jobs sufficient to reliably employ the Chinese workforce, thereby allowing the Chinese Communist Party to maintain control.

Many Chinese subsidies violate the requirements of the World Trade Organization, and the US has sought sanctions, but the Commission says that the WTO rules are meant to deal with narrow issues, not the broad national practices of China. The WTO rules require consultations as well as litigation, and even after a victory, they are able to delay. By the time the US and Canada won a WTO ruling barring favoritism in manufacture of auto parts, many manufacturers had moved production to China, so those jobs were lost.

Don’t think that we will be able to compete with our high tech products. China uses industrial policy to achieve technology transfer. Here’s an example from the call. China had not mastered several crucial issues in the manufacture of jet propulsion blades.

More below the fold...

by cactus

Regular readers know that (together with a currently un-named co-author) I recently wrote a book looking at how Presidents performed on a wide range of issues, everything from abortion to the economy. The book is currently scheduled to come out next year (more info as it becomes available), and I’m playing with ideas for a second book right now. Not a sequel since what I have in mind is very, very different, but I think there’s something to be said about looking at how things change over the length of a presidential administration as it kind of smoothes out bumps.

Think of it this way – even the most law and order president might decrease spending on law enforcement from, say, year five to year six of his administration, but you can bet that such spending over the length of his administration will increase. Even Reagan raised some taxes, after all.

And since I mentioned St. Ronald, I’d like to focus this post on an issue near and dear to the heart of folks who like to invoke his wisdom – the importance of taxes when it comes to providing incentives to the private sector. See, raising taxes causes the producers, the folks who make things happen (as opposed to losers like you and me) to retreat, armadillo-like, into their underground Galtian burrows in the sky. The end result is that the economy tanks and we all starve to death. That’s why economic disasters never start during Republican administrations.

So let’s take a jog with this puppy, shall we?

More below the fold...

November 12, 2009
Reform: Looking at the Glass Half-Full Part 2

  by Maggie Mahar, Health Beat Blog

Reform: Looking at the Glass Half-Full, Part 2

The Truth about the Public Option

For reasons I don’t understand, progressive pundits have been swallowing Congressional Budget Office Director Douglas Elmendorf’s dispiriting speculation about the public plan, hook, line and sinker.

Elmendorf claims that in 2019 (six years after reform begins), less than 10 percent of the population will be shopping in the Insurance Exchange where they can choose between private insurance and the public plan. Elmendorf asserts few will choose the public plan and many of those who do will be in poor health. The government plan will be puny—giving it little market power when negotiating with providers. Thus, he declares, the public plan will be more expensive than private insurance. (This may be why Senator Joe Lieberman has claimed that the public option will somehow add to the deficit)

What is remarkable is that if you read Elmendorf’s commentary you will find that he has no hard evidence to back up his claims. His assessment is based on “probably’s.”

By contrast, what we actually know about who will be eligible for the Exchange, and what reform legislation says about the goals of the public plan, suggests that the public option will be much stronger, more attractive, and less expensive than the CBO director suggests.

More below the fold...

Rdan

Pragmatic capitalist points us to thinking that works for some.

The strategy outlook at JP Morgan is little changed over the last week despite some sobering news out of the labor department last Friday. The bad news on jobs is no longer a surprise to investors and history has shown that past jobless recoveries were dealt with fine by most major asset classes. Although the jobless recovery creates some greater headwinds than most recoveries it is not an immediate headwind as JP Morgan analysts continue to see a flight into equities as portfolio managers chase performance in to year-end.

While many investors (including your truly) have expressed their dislike for the Fed’s liquidity induced “recovery” JP Morgan sees no issues with it. In fact, they see it as a normalization of the allocation of capital in the markets:

Rdan here...this doesn't look good for the jobless and the main street economy.

Robert Waldmann

A specter is haunting Paul Krugman -- it is the specter of apparently sophisticated forecasters who predict a huge spike in US long term bond rates in the near future. He notes that most investors can't believe this or rates would already be high. He also notes that some of those who are predicting a spike seem to be top advisors somewhere in the Obama administration.

He is puzzled by this phenomenon. I just note that it is not new at all. Basically such apparently sophisticated people predicting a spike in long term US interest rates are (almost) always with us. So far they have always been wrong. This issue is extensively researched by Nazaria Solferino et al in an article forthcoming in the journal of forecasting.

More below the fold...

Ken Houghton notes that playing with data is dangerous.

Predicting the future tends to be easy. There are several ways to do it. First, you can predict that everything will grow as it did this year—or last year, or the mean of the past x years. Or you can predict that it will be great if a Republican is in office, but horrible if a Democrat is. (Call this The Kudlow Effect.)

Or, you can just predict that everything next year will be the same as it is this year.

This appears to be fairly close to what consumers do, judging by this scatterplot of annual inflation (i.e., inflation over the previous twelvemonth) against the University of Michigan's median expectation from consumer surveys.

So the "Rational Agent" believes that nothing will change. Comments?

Js-kit has some comments embedded in the post, at the bottom of each post after clicking on the title of the post you want to read. There is a disconnect with the blue comment link at the top of the post (blogger comment format). Very inconvenient. Sorry.

Update: Blogger and js-kit are synchronized in 'below the post comment form'. I believe all comments have been included. Yeah me. I can synchronize in pop up window as well, but it lacks any versatility.
Any preferences for a day or two?

Robert Waldmann

The one by Paul Krugman is a must read.

what I hear is that officials don’t trust the demand for long-term government debt, because they see it as driven by a “carry trade”: financial players borrowing cheap money short-term, and using it to buy long-term bonds.

[skip]

the remedy should be financial, not fiscal. Have the Fed buy more long-term debt; or let the government issue more short-term debt.

That does sound rather obvious doesn't it ? Why aren't they doing that ?
My guesses after the jump.

More below the fold...

Robert Waldmann

Can the Fed do any more to stimulate the economy ? The question is back. The answer is only by making credible promises about the fairly distant future. My view is that this means no. I review the issue after the jump.

More below the fold...

With all the talk of "Detroit," you would think that Michigan would have lost the most employees, as a percentage of same, on the year. After all, the scariest graph of the U.S. MSAs isn't scary for nothing.

But the Regional and State Employment data is out for October (h/t CR), and there's a different leader.

Apparently, the bursting of the Sunbelt Bubble (building expensive houses in the absence of a water table; what could go wrong?) compares well with destroying unionized automobile production. (Note to Senator Shelby: destroying Detroit didn't keep your state from being #10 on the list.)

Also note that #4 on the list is my favorite state for bank failures. (The three states with 20 or more bank failures since Bear Stearns failed are 4th, 9th, and 11th on the list. The only other state in double-digits right now, Florida, is 16th.) I'll wait patiently for Brad DeLong to explain again how "support of the banking system by the Fed and the Treasury [has] significantly helped the economy."

The third and biggest point is that many of those are large states that have leaned Democratic in the past several years. Anyone betting that they—and the next two states, North Carolina and Wisconsin, which both went for Obama in 2008—will be hard-pressed to support Democratic policies twelve months from now without a significant change in the trend.

New Jersey showed you what happens when you run a former Goldman Sachs CEO for Governor right now. Virginia showed what happens when the base isn't motivated. Paul Krugman makes the point directly:

The longer high unemployment drags on, the greater the odds that crazy people will win big in the midterm elections — dooming us to economic policy failure on a truly grand scale.

What are the odds of crazy people winning big? I'm not certain, but I make them much better than 20:1 based on the current data.

UPDATE: Via Mark Thoma, Free Exchange, of all places, also sees the danger:

[W]hat is clear is that it does no good for prominent, respected economists to continue heaping praise on a Fed that failed in its mission before the crisis and which [sic] is failing in its mission now.

Because as unpleasant as the prospect of Congressional intervention in monetary policy is, two more years of high unemployment might well lead to far worse.

Update:
Menzie Chin weighs in:

http://www.econbrowser.com/archives/2009/11/the_global_surf.html

Congratulations to Andrew Samwick of Capital Gains and Games for being named Professor of the Year in New Hampshire.

[cross-posted on ataxingmatter--see posting there for additional comments]


As some of you may know, I am one of the many people who eat a vegetarian diet. I don't eat cows, pigs, fish, whales, sharks, chicken, turkey, sheep, wild game, tame game... As I sometimes say when people ask me about my diet, I eat everything you eat, except for a very short list of items--the critters that can move themselves from one place to another (or move their appendages) under their own propulsion.

(Note that we often have two words for animals that we eat--their live-form word --e.g., cow, sheep, pig-- and their edible-corpse form word --e.g., beef, mutton, pork. That evolved when we borrowed the Romance language word for what we ate but kept the Germanic language word for the animals.)

It started when I was a child--I was one of those who would cut the meat into tiny pieces and then spread it all over my plate so it looked like I'd eaten it. The idea of eating a cow, with those beautiful liquid brown eyes, was repulsive. (My father came from a family with thirteen kids in the hills of Tennessee, so I'd seen cows up close.) I even took a whole piece of veal once and hid it behind the dining room cabinet (taking it out to the wastebasket after it dried)! I refused to eat the squirrel and venison that my dad brought home from hunting trips (mostly, if not always, somebody else's kill). I even refused to let my cocker spaniel share in that dead stock.

But now that I'm an adult, why do I maintain that diet? I get asked that a lot.

Funny, nobody says (with shocked exression)--"Gee, you eat meat? Why would anyone ever want to eat a toxins-laden dead corpse of an animal that lived a horrendous life and suffered an agonizing death? " But they do often ask--usually treating it as a good-natured tease about a wacky alternative diet--why I'd want to avoid eating corpses.

James McWilliams got me thinking about this again this morning, when I read his "Bellying up to environmentalism" in the Washington Post for Nov. 16, 2009, where he noted that we should be asking questions in the reverse, that make meateaters feel uncomfortable at defending their own meateating. After all, there's really no good reason for eating meat other than that someone is so addicted to its taste that he or she can't exert the willpower to do without it.

More below the fold...

Rdan
(Run 75441...h/t)

Maggie Mahar writes an essay that is now cross posted at Angry Bear with the author's permission:

Health Beat, a Project of the Century Foundation;
November 4, 2009 Heath Care Reform-- Looking at the Glass Half-Full

What Has Been Accomplished; What Still Must Be Done

These days, many progressives are expressing deep disappointment with the health reform legislation now moving through Congress. Some suggest that some legislators made deals with lobbyists and let them write the bills. Others complain that both the subsidies and the penalties are too low. Still others don’t like the fact that states can “opt out” of the public insurance option, and decide not to offer Medicare E. Finally, many ask:
Why can’t everyone sign on for the public plan in 2013? Why do we have to wait until 2013? Why cn’t they roll out universal coverage next year?”


Normally, I would be among the first to critique the bills. By temperament and training, I’m both a skeptic and a critic.
But in this case, I think it is important to recognize that we cannot expect this first piece of health reform legislation to be anything but wildly imperfect. In fact, I’m impressed by the progress Washington has made in just ten months. I’ve been watching the struggle for health care reform since the early 1970s, and compared to what has happened over the past 39 years, this is mind -boggling.

I also believe that those who favor overhauling our health care system should send a strong signal to legislators: we support you for having come this far. We realize that you have three years to strengthen, change and refine the plan before rolling it out in 2013.

What Has Been Accomplished

What is astounding is that this Congress has made as much progress as it has. We may have a new administration in the White House, but we do not have a brand-new group on the Hill. The majority of our legislators are moderates; many are conservatives. Nevertheless, a sufficient number have found the will to stand up and back changes that would make health care affordable for millions of poor, working-class and middle-class Americans.

More below the fold...

Suppose I make my monthly budget, and assume I'm going to spend $600 for food.

At the end of the month, I discover that I only spent $520.

I expected to take $80 out of savings that I now do not have to. My bank account is now $80 higher than I expected it to be at the end of the month.

Is this difficult to understand? Apparently it is if you're a financial journalist:

The White House, we are told, won’t be using about $200 billion of the $700 billion authorized under the Treasury’s Troubled Asset Relief Program, a lifeline for ailing banks. Instead it plans to use money never borrowed, never spent, that nonetheless increased the projected 2010 deficit, to narrow that projection of $1.4 trillion, according to a Congressional Budget Office estimate.

This un-borrowed, un-spent money qualifies as deficit reduction?

Yes. We expected a $1.4B deficit, it will only be $1.2B.

Next silly question.

For Asia’s emerging economies, Geithner’s high road entails strengthening “their social safety nets through sustainable health and retirement-benefit schemes, thus reducing the need for high precautionary saving that contributes to global imbalances.”

Uh, I think I'll leave the rest of this to Bruce. Who knows better than to bother with resent Valuing only one future cash stream and pretending it's the same as the current budget.

Rdan

Hat tip to Economist's View for the post from Top-down versus bottom-up macroeconomics, by Paul De Grauwe, Commentary, Vox EU for starting an interesting conversation on macro that I think is very relevant to the public story we tell ourselves about how our economy works. One key point is the nature of central planning in the private sector by private companies, especially those who drive how things are done. The public and media narrative tend to be quite skewed and limited, depending on the nature of special interest.

by Bruce Webb

I am still working out the new formatting and rather than hog all the page space here I'll just put up some links to the bill, the CBO Score, plus some extended discussion with extracted Tables at my site.

Senate Merged Health Care Bill (2.5MB PDF)

CBO Score

Discussion at the BruceWeb

$894 billion cost offset by taxes and fees for a Ten-Year $129 billion deficit reduction.

Coverage for 94% of all legal non-elderly residents, 98% for all legal residents (includes Medicare). Public option opt-out. Abortion not covered in the PO but at least one plan in the Exchange must offer coverage, and one must not.

Otherwise take it away. Updates in Comments.

And, if I were a better person, you would be reading my interview with David Kurla, CEO of IkoToilet/Ecotact in this space.

But I'm not, so go to his website, especially the links for school, urban, and slum toilet provisions, and then see this John Sauer piece at the Huffington Post, and check out the information at Sauer's organization, Water Advocates.

My apologies for the inconvenience of changing the template. Even feed links were changed about in the transfer. Since the posts are intact, my first priority is fixing comments with js kit (and blogger comments for new).

Dan

Rdan

Martin Ford continues his thoughts on:

The Mythology of the Future Job Market

Angry Bear recently picked up an article by Michael Lind at Salon on the jobs of tomorrow. The story notes that advancing job automation technology is going to be the primary force that will shape the future job market. That’s something that I have also been talking about here.

Lind’s article then goes on to do a pretty good job of fleshing out the conventional wisdom on where jobs are going to come from in the future:

The most numerous and stable jobs of tomorrow will be those that cannot be offshored, because they must be performed on U.S. soil, and also cannot be automated, either because they require a high degree of creativity or because they rely on the human touch in face-to-face interactions. The latter are sometimes called "proximity services" and they include the fastest-growing occupations, healthcare and education.

So we are led to expect that, over time, the bulk of the workforce is going to migrate into jobs that require creativity or innovation, or jobs that depend on uniquely human traits or talents. Furthermore, these new jobs are going to require that any innovation, creativity or personal attention occur pretty much while actually holding onto your customer’s hand—so that the job can’t be offshored. Is that really a likely scenario?

The first thing to note is that the two sectors singled out as being promising—healthcare and education—are by no means exempt from automation. Specific healthcare tasks are likely to be automated, while decision making and patient monitoring may migrate increasingly into expert systems.

More below the fold...

By Spencer

Industrial production only increased 0.1% in October, from a previosly estimated 98.5 to 98.6.
But I suspect this number was biased downward and will be revised higher.

As the chart shows, this changes the impression the previous reports had given that this was a normal to strong recovery in industrial output to one that it is a weak recovery.


A primary reason industrial production appears so weak is that October auto and light truck output fell to 6.83 million vehicles as compared to 7.15 million in September and a cyclical low of 4.05 million in June. However, as the production of all items excluding autos and high technology was unchanged in October the weakness appears to be widespread.

However, I am suspicious that this report overstates the weakness and will be revised up as other information is included and revised data is reported.

Much of the initial estimates of monthly industrial production data is based on electricity consumption data. However, the national average temperature days for October 2009 were extremely low at only 50.8 degrees Fahrenheit. In a quick check of my data base this is the second lowest October reading on record going back to 1921. The lowest was 49.4 degrees in 1925 and the only one I saw below 50 -- the highest was 60.0 in 1963. The norm is around 55 degrees so the October temperature days was some 10% below normal. This strongly implies that the electricity usage would have been significantly below normal in October and consequently the industrial production data estimates are undoubtedly biased downward.

Moody's had always assumed banks and their securities were "Too Big to Fail." Not any more:

Moody’s Investors Service will no longer assume that holders of the securities will benefit from government support to shore up troubled lenders, after the global financial crisis proved this wasn’t the case, Moody’s said in an e-mailed statement today.

"In some cases government bank interventions throughout the crisis have not benefited, and have even hurt, the holders of those instruments," Barbara Havlicek, a senior vice- president at Moody’s, said in the statement. "It is clear that hybrids are highly susceptible to losses due to their unique equity-like features."

Since ratings are essentially answering the question "Should I expect to receive full payment on this security?" the previous proclivity to rate paper AAA based on the idea that the U.S. Government would make investors whole in the case of a crisis* contributed to rating inflation.

This change is a welcome first step.

*This is essentially the same scenario as all the lendings that caused the S&L crisis: "we think the land has oil in it" so it's worth $X. So the banks lent X. And the land very often didn't have oil in it. So $X had been given for a dust pile in West Texas around which the also oilless land was selling, if at all, for Y, X>>Y. Oops.

Rdan

Not only is ER care enormously expensive for 'more routine' health concerns than a clinic, but perhaps are not equal for insure/uninsured even for traffic accidents, not withstanding our best wishes.

Sphere notes a report from the Archives of Surgery:

It's federal law: All seriously injured emergency and trauma patients must be given equal lifesaving care, whether or not they can pay for it. But that's not happening, according to a new report. The study, conducted by Children's Hospital Boston research fellow Dr. Heather Rosen and colleagues from three other hospitals, found that uninsured trauma victims ages 18 to 30 are dying at an annual rate 89 percent higher than insured victims with identically severe injuries.

As the health reform tornado continues to swirl on Capitol Hill, the data could provide fresh ammunition for those pushing for expanded health insurance coverage.

The study, published today in the Archives of Surgery, examines the survival rates for patients brought to about 900 U.S. trauma centers between 2002 and 2006, analyzing some 690,000 patients who had suffered penetrating trauma -- such as wounds inflicted by a gun or knife -- or blunt trauma from vehicle crashes and falls. Earlier research found 18,000 extra deaths a year among uninsured victims of such injuries. Rosen and the other researchers chose to focus on the 18-to-30-year-old subset because they had fewer existing conditions -- comorbidity -- that muddy the evaluation of the cause of death.

More below the fold...

Robert Waldmann+

I paraphrase Kevin Drum

My post last night about the CMS report on healthcare reform ... [was not] a model of clarity. For more, see Ezra Klein here and Jon Gruber here. Combined with ... [Drum's original] post and this Wonk Room post, you should get a pretty good idea of what's up.

Kevin Drum's orginal post is much clearer than mine and makes the point I tried to make in the last paragraph.

After the jump I have further thoughts.



I quote from the wonk room post

CMS doubts that the health care industry could “improve their own productivity to the degree achieved by the economy in large” and predicts that the productivity adjustments in the House bill could lead some Medicare providers “for whom Medicare constitutes a substantive portion of their business” to stop seeing Medicare patients.

First I note again, the unrealistic productivity estimates are used to calculate Medicare compensation for institutional care providers (hospitals, nursing homes and home health care agencies) not physicians in private practice. This is important, because physicians in private practice are much more likely to refuse Medicare patients.

Second I ask if CMS chief actuary Foster is familiar with economics 101. The clause “for whom Medicare constitutes a substantive portion of their business” makes negative sense. (I'm trusting Wonk Room's Igor Volsky to have quoted without removing necessary context. I haven't gone back to the pdf.)

As usual, I start with a very unrealistic economics 101 model. I assume that hospitals aim to maximize profits (totally false). In that case, hospitals will accept Medicare patients if the fee is below marginal cost. Marginal cost is increasing along the relevant range. Consider hospital A and hospital B (assume they have the same number of beds and same marginal cost as a function of patient population for simplicity). A does a lot of business with the CMS, B just a little. If A refuses Medicare patients, then the reduction in its patient population will be greater than that of hospital B if hospital B refuses Medicare patients. This means that the average marginal cost of treating the patients it turns away will be lower. This means that it can't be profit maximizing for A to turn away medicare patients and for B to treat them.

Consider the extreme case of a hospital with only Medicare patients. If it refuses CMS rates it will have zero revenues and go bankrupt. Consider the extreme case of a hospital with no Medicare patients. Refusing to treat Medicare patients makes no difference at all.

OK so ospitals, including for profit hospitals, are not profit maximizing entities (I think no firms are). However, I don't think that there are hospitals with many Medicare patients which can afford to refuse Medicare compensation. Note they still have to provide emergency care (by law) and they can not bill the Medicare patients rather than the CMS (If they accept CMS payment, then they can charge patients up to 15% in addition to what they get from the CMS with or without reform).

The logic of Foster's argument is that hospitals which have lots of medicare patients will go bankrupt if the HR3692 is enacted and the limits are actually enforced. This logic is invalid, because the increase in insurance coverage implies more revenues for hospitals. One can't consider money from the CMS alone when considering whether a hospital goes bankrupt.

The relative rates CMS vs other are relevant to the choice of refusing to deal with the CMS. I think this would be financial suicide for the average hospital even if the cuts in CMS rates are enacted and not waived. Only hospitals who have few Medicare patients could afford to refuse to treat Medicare patients.

Basically, I think Foster is confusing marginal and average costs. He decides that if you lose money in an accounting sense doing something, then you have higher profits if you don't do it. That assumes that capital costs and overhead decline proportionally to patient population. That is a plainly false assumption and the inference based on it is nonsense.

Bob Somerby has been on a rant at The Daily Howler that "liberals" do not understand the Stupak Amendment.

Unfortunately, claims he makes about Rachel Maddow and Keith Olbermann and their guests do not apply to Laurie Rubner. At the Health Affairs blog, Ms. Rubner is direct and to the point:

From the very beginning, a central tenet of health care reform was that no one would lose coverage they already have. That’s why so many women are outraged by the Stupak amendment to the health reform legislation recently passed by the House. It goes against one of the fundamental tenets of health care reform: do not leave anyone worse off than they were before reform....

The Stupak amendment extends the group of women ineligible for abortion coverage far beyond its current breadth. It is essentially a middle-class abortion ban. The exchange would offer coverage to many of the 17 million women ages 18–64 who are uninsured, along with the 5.7 million women who are now purchasing coverage in the individual market. In addition, small employers are also likely to purchase their health insurance through the exchange where they may find more affordable options. Because the majority of health insurance plans in the private insurance market currently include abortion, many women will lose coverage that they already have in an exchange where abortion coverage is not permitted.

The Stupak Amendment is, among its other ills, not Pareto-optimal.

I wait—patiently, of course—for Andrew Samwick or Greg Mankiw or even Sensible Centrist Economists such as Brad DeLong and Mark Thoma to denounce the Stupak Amendment as a violation of the First Welfare Theorem.

Passionate defenders, gather ye round:

"Right there in the preamble, the authors make their priorities clear: 'one nation under God,'" said Mortensen, attributing to the Constitution a line from the Pledge of Allegiance, which itself did not include any reference to a deity until 1954. "Well, there's a reason they put that right at the top."

Rdan

I will be switching the template this week. The key is function this week...Let me know if everything works from comments to links. Next week come refinements.

by cactus

The weather was beautiful on the day I was almost murdered. Since it happened (or almost happened) in Brazil, it might not seem surprising that the weather was nice, but this was São Paulo where the only certainty is pollution. Beautiful days in São Paulo are worth noting, even when you barely make it through them alive.

The events of that day are not something I talk about much, and I doubt I have ever written about them. But I've been thinking about the murders committed last week by Major Nidal Malik Hasan. See, the guy who almost killed me - and I'll call him G, has a similar ethnic background, though he hailed from a point a few hundred miles and a border crossing away from where Hasan originated.

But there are some differences, or at least were, between G and Hasan. Hasan was in the U.S., and apparently was an American citizen. G was neither. But I don't know if that's still true. It is my understanding that G is now in the U.S., and may have acquired American citizenship. The reason I don't know with absolute certainty is that G's last name is kind of common in the Middle East, and his first name - always popular in the Middle East - became doubly so after an extremely anti-American "warrior" made a name for himself through the sort of spectacular failure that is so widely revered in the region.

G's problem with me was that I was Israeli. Except that I wasn't. To this day, I've never been to Israel. But I am Jewish, and an American, and apparently, to G, there is/was no difference between an American Jew and an Israeli. His problem with Israelis seemed to stem largely from the fact that the Israelis sided with the Christians during one of the Lebanese Civil Wars. Which brings up a wider issue - I don't think he was all that fond of any non-Muslims. Or what he'd call non-Muslims, but which would probably be better termed non-Islamists. (And there is a big difference.) I barely knew anything about him, never associated with him, and generally avoided him, but it was obviously he was pretty pissed off at the world around him.

And its also pretty obvious that G is not unique in disliking non-Islamists. Yet plenty of people fitting precisely that description (i.e., disliking non-Islamists and all that the West seems to stand for) appear to have no problem coming here, as much as they despise this country and its residents. But that kind of internal fucked-uppedness is not uncommon. Hasan could get his jollies at a strip club while mentally and metaphorically applying oil to the cleansing blade of the One True Faith.

The flip-side of the equation is the problem for me. Just because some people who are messed up in the head can maintain positions that are internally contradictory doesn't mean we should facilitate the process. After all, as its been noted many times, the Constitution is not a suicide pact. We as a people have no requirement to allow extremists into the country whose goal is to kill us. A bit of digging to ensure we don't let in people who believe Americans in general are evil and deserve to die because of their faiths or behaviors would not be unreasonable.

In fact, it should be a flat out question asked of those who would come to the U.S. "OK... Next question... Do you think the infidels should die? Yes or no?" (FYI, my father immigrated from Argentina, and I don't believe that was a question he was asked.) In fact, getting a citizenship should be a bit like a contract, and one of the terms of the contract has to be that citizenship gets revoked and you have twenty minutes to be on the next plane out if you join some organization for which "Death to America" is a rallying cry.

Engaging in such a policy would be discriminatory. I bet it would be opposed by organizations like CAIR. But we already discriminate. A few years ago, my first cousin and her family (from Argentina) were living in Mexico City, as her husband's job had transferred them there for a few years. They wanted to come to the US to visit family and do some tourism, and they had the funds to do so (which would have helped the US economy). The problem was they couldn't get a visa; apparently people with well-paying jobs abroad are viewed as having an almost uncontrollable desire to overstay tourist visas and seek out lucrative positions picking lettuce in Novato, CA or busing tables in some no-name place forty miles from Lincoln, Nebraska. Or something.

The source of discrimination, when it comes to immigration and tourism, is that more people want to come to the US than can fit at any one time without killing the goose that lays the golden eggs, so to speak. So if we're going to discriminate anyway, shouldn't we at least try to differentiate between our friends and our enemies?
______________________________________
by cactus

Robert goes out on a limb and guesses that Lori Montgomery fell for (or is pushing) Republican spin in this article in the Washington Post
Report: Bill would reduce senior care
Medicare cuts approved by House may affect access to providers

A plan to slash more than $500 billion from future Medicare spending -- one of the biggest sources of funding for President Obama's proposed overhaul of the nation's health-care system -- would sharply reduce benefits for some senior citizens and could jeopardize access to care for millions of others, according to a government evaluation released Saturday.

The report, requested by House Republicans, found that Medicare cuts contained in the health package approved by the House on Nov. 7 are likely to prove so costly to hospitals and nursing homes that they could stop taking Medicare altogether.

Congress could intervene to avoid such an outcome, but "so doing would likely result in significantly smaller actual savings" than is currently projected, according to the analysis by the chief actuary for the agency that administers Medicare and Medicaid.

I have read the report (warning pdf) ... well actually up to the passage stressed by Republicans and Montgomery. Montgomery's article focuses on one paragraph deep in the report which begins "It is important to note that the estimated savings for one category of Medicare proposals may be unrealistic." That's some serious digging.

The paragraph goes on to discuss what seems to be new additional budgetary flimflam which is assuming that productivity in hospitals and nursing homes grows at the national average (measured productivity grows much more slowly and it doesn't matter if this is due to unmeasured improved quality of care). That would be part of a large savings of $ 282 billion. The report doesn't describe what the savings would be if Medicare rates were adjusted to a reasonable forecast of productivity growth.

Now I had assumed that Medicare cuts other than eliminating the Medicare advantage boondoggle were reductions in money effectively given to hospitals (and nursing homes etc) so they could afford to take care of the uninsured. Hospitals' budgets will be affected by increased health insurance coverage, both by the increases in the total fraction of people insured and the fraction of people with pre-existing conditions insured. This means that the total effect on Hospitals' budgets can't be calculated assuming only Medicare payment rates change.

Importantly, the Foster (the author) assumes that reduced Medicare payments will cause hospitals to choose to refuse Medicare patients and not drive Hospitals bankrupt. It is true that relatively lower Medicare rates will cause more hospitals to refuse Medicare patients. How many currently do? I googled
"hospitals which refuse medicare" I got links to articles about physicians who refuse Medicare patients and this link to someone who works at a hospital where they talked about refusing Medicare patients.

Medicare rates are already low. There sure don't seem to be many hospitals which refuse to treat Medicare patients.

OK so I tried the past tense and googled "hospital did not accept medicare"
This link to someone who says an anonymous hospital told her in 1998 that they didn't accept Medicare patients.

Quite frankly this doesn't seem to be a huge problem. The idea that it will get even bigger if Medicare rates fall further below other rates doesn't seem to me to merit page 1 treatment.

I think Foster is saying that he believes that the new restrictions on Medicare compensation will be waived just as the existing restrictions are waived. He can't say that Congress is flimflamming so he has to explain how this might be a natural response to unforeseen events in the future. My current guess is that the event will be the perfectly foreseeable complaints from hospitals and nursing homes and that the forecast that Congress will waive the rule is the only forecast a responsible actuary can make.

The Republican/Montgomery/www.washingtonpost.com headline guy spin that elderly people will be denied care if the bill passes is absurd. If that's the way things worked, the 1997 rule wouldn't be waived year after year.

There don't seem to be many reports of hospitals refusing Medicaid either.
No google hits for "hospital refuses medicaid" one for "hospital refused medicaid" to a publication of the National Center for Policy Analysis. Hmmm, where have I heard of that? It's the so called think tank which fired Bruce Bartlett for heresy.

The document to which I link asserts that Veterans care is queue rationed and that the veterans administration does provide as high quality care as that available to people with private insurance. Non ideological sources rate the veterans administration as the best care provider -- number one.

I think that "Hospitals will refuse Medicare and/or Medicaid" is a serious policy concern on a level similar to the "tax cuts cause increased revenues." And here it is on the front page of www.washingtonpost.com.

Update: Note I am writing about hospitals who refuse Medicare not doctors in private practice who refuse Medicare. My googling and questions were on hospitals which refuse medicare and/or medicaid. Of the first 7 comments, 5 discussed office based practices which refuse medicare. By my count letters "hospital" appear in that order 18 (eighteen) times in the post (sometimes followed immediately by an s). Somehow commenters seem to have overlooked all 18 (eighteen) of them.

This is not a quibble. The provision of the bill which Foster suspects will not be actually applied concerns "institutional" providers of health care not physicians in private practice. I quote from his report

H.R. 3962 would introduce permanent annual productivity adjustments to price updates for institutional providers (such as acute car hospitals, skilled nursing facilities, and home health agencies) using a 10-year moving average of economy-wide productivity gains. [skip] end participation in the program (possibly jeopardizing access to care for beneficiaries).

That's why I asked about Hospitals refusing medicare patients. There is a big difference between squeezing the entities which can't be squeezed and squeezing those which can be squeezed (provided they are getting a lot more money due to increased insurance coverage so they won't go bankrupt).

No place to pahk the cah.

Rdan

After having received e-mails regarding Mark Thoma's post on types of unemployment about who was included and excluded from the per centages, I thought a note on the relevance of the employment to population ratio to be worth repeating from comments on that post.

Lifted from comments by run 75441 regarding "unemployment"here:

...[D]id everyone finally awaken to the fact we are experiencing a "new and lower" plateau of people in the Civilian Labor Force as a percentage on the Non-Institutional Civilian Population. It is ~1.6% lower than what it was immediately after the 2001 Recession experienced 8 years ago which equates to ~ 4million additional people in the Not In Labor Force.

Eventually people will re-enter the Labor Force??? For 8 years now much of US Labor has been waiting for the tsunami of job creation that was supposed to come, has not come yet, and I doubt will come soon if . . . if at all. They waited too long to be concerned about unemployed Labor. For almost as many years, states have been engaging in training programs for unemployed workers, and it has not had an impact upon Unemployment or those relegated to the Not In Labor Force because the jobs are not there. Unless there is some serious job creation, outstripping increases in population growth; the plateau of 65.1% is here to stay and will probably drop lower.

Spencer's chart of "Nonfarm Business Labor Share" here: puts much into perspective for Labor its share of profits/wages since 1982 as shown here: "Productivity Growth." That share has been shrinking with the result of fewer people working the same numbers of hours for lower wages as productivity increases. The paradigm of higher productivity creating higher wages or less time worked as Tom Walker suggests, is at least 8 years dead. The increases in productivity is the result of few workers workering and lower hours while wages are dropping or are stagnant. We also have the issue of greater technological advances incorporating more artificial intelligence which will sideline even more labor.

[Eight] years of [S]tructural Unemployment is not a normal event. There is something radically wrong when Unemployment hovers at higher than normal levels and more people become structurally disenfranchised from the Civilian Labor Force. I might suggest more of the profits is going to Capital rather than Labor and job creation. The infrastructural costs in the US has always been higher than our Asian neighbors and this does include Healthcare Cantab. Hanging overhead is the chance much of the benefits and protective laws making up this infrastural cost may be shuffled into the background for the purpose of creating low wage jobs.

Thoma's article is a nice review of economic history and I hope a basis for some new ideas breaking down the old pardigms of economics. It is not much more than that for now.

UPDATE: Laurent Guerby, in comments, reminds us of his review of this issue back at the end of January: Original link (French); Babelfish translation to English. Previously discussed in a Guest Post by run74551 at AB here.

For the record, both my daughters were vaccinated today, under government supervision at no cost to us, in a procedure that took less than 10 minutes—including getting a five-year-old to take her coat off and, post shot, put it on again.

Via Felix Salmon's Twitter feed, without further comment.

(cross-posted from Skippy the Bush Kangaroo)

Rdan

For the sake of argument, jobs in our future over the next few years or so appear to be in the health care industry and education. Jobs needing less education than a BA are among the fastest growing.

Where are tomorrow's jobs going to come from? The question is more urgent than ever, with official unemployment hovering around 10 percent and with nearly one in five Americans unemployed, if you count part-time workers who want full-time jobs and people so desperate that they have given up looking for work entirely.

Most popular discussion about jobs focuses on the effects of offshoring of manufacturing jobs to China and other countries, many of which, like China, manipulate exchange rates and use subsidies to promote their industries. Combating predatory trade practices and rebalancing global trade by means of higher U.S. exports is important, in the short and medium term. But in the long run technologically driven productivity growth is the most important factor in shaping employment in the U.S. and every country in the world.

Productivity and innovation are the catch words, and examples demonstrate how this has worked in the last century. But if policy makers need to craft a response to mitigate the changes, and re-training happens, what is it going to be?

The emptying of the cubicles won't result in permanent mass unemployment, the present prolonged crisis notwithstanding. As it has always done in the past, labor will shift from more mechanized to less mechanized sectors. But what will those jobs be?

...

The aging of the boomers accounts for only 10 percent of the growth. The rest comes from increasing demand. That's because productivity growth in agriculture, construction and manufacturing has greatly reduced the cost of food, shelter and appliances. In the U.S. and similar nations, the freed-up income tends to be used on quality-of-life goods, of which healthcare is the most important.

...the economist Robert Fogel, "Just as electricity and manufacturing were the industries that stimulated the growth of the rest of the economy at the beginning of the 20th century, healthcare is the growth industry of the 21st century. It is a leading sector, which means that expenditures on healthcare will pull forward a wide array of other industries, including manufacturing, education, financial services, communications and construction."

...

Another widespread myth holds that most Americans need to go to college in the future. In reality, most of the fastest-growing jobs, including those in healthcare, do not require a four-year bachelor's degree. According to the Council of Economic Advisers: "The categories with some education required beyond high school are growing faster than those not requiring post-secondary schooling.

...

None of this means that we don't need world-class scientists and engineers, or that we don't need to rebuild our manufacturing export industries, or that we don't need to hire people to design and build up-to-date infrastructure and energy systems. High-tech agriculture, manufacturing and infrastructure and related business and professional services will remain essential to economic dynamism. But thanks to ever smarter machines, fewer and fewer people will work in the primary (field), secondary (factory) and tertiary (office) sectors. Most of the job growth will be in the "quaternary" sector of healthcare and other qualify-of-life services.

Robert Waldmann

Larry Summers, who is very very good at provoking debate, said
“It may be desirable to have a given amount of work shared among more people. But that’s not as desirable as expanding the total amount of work.”

Paul Krugman responds here

True. But we are not, in fact, expanding the total amount of work — and Congress doesn’t seem willing to spend enough on stimulus to change that unfortunate fact. So shouldn’t we be considering other measures, if only as a stopgap?”

Please click the link and read Krugman's op-ed if you haven't already. It is excellent but limited to 700 words. Unlimited reflections on the topic after the jump.


I'm going to start with my proposal. I think that there should be a combination of subsidies for new hires funded by revenues from cap and trade (I'm a member of the Pigou club) and an increase in the progressivity of the tax system (not just because I always want to increase the progressivity of the tax system).

Second, Krugman suggests that US unemployment is not just high, but much higher than it need be given the large recession and small stimulus. Note that the evidence he presents is the change in employment and unemployment in the US and Germany. One might suspect that this amounts to the US unemployment rate rising to a level similar to the German unemployment rate – that in effect Krugman is proposing that we don't accept unemployment that suddenly rises to around 10% in a recession but rather insist on such levels all the time.

One would be wrong (I admit I was such a one, I haven't been following German unemployment). The OECD standardized US unemployment rate surpassed the Euro area unemployment rate in August 2009 (warning pdf) (figures for September are in the mail the August figures were released October 12). The OECD standardized US unemployment rate 9.7% was significantly higher than the German rate 7.7% in August. The decline in German GDP was, if anything, slightly larger. I find this stunning.

So how did they do it and should we do what they did?

First all Euro area countries have strong restrictions on layoffs. At least two Italy and Spain have decided not to apply the restrictions to many newly hired workers starting, in the case of Spain, almost 30 years ago. The Spanish increase in unemployment is even huger than the US increase.

It was already clear in 1980 that employment protection protected employment in recessions. It is also notable that, before their reforms relaxing restrictions, Italy and Spain managed decades with no employment growth. I very much like employment protection legislation as it changes the balance of power between workers and employers. I don't like zero employment growth for decades. In any case, it isn't going to happen there (in the USA).

The effect of employment protection legislation is a confounding factor not relevant to the US policy debate and a major part of the explanation of the especially bad experiences of the US, Spain and Ireland.

Second job sharing. Germans have been doing this for decades. The idea is that there is a fixed number of hours of work demanded and it is better if everyone works part time than if some are unemployed. This reasoning is like a red flag to a bull to almost all economists certainly including Larry Summers (and including Paul Krugman in the past). Krugman considers it a third best approach imposed by political limitations. I'd note that the simplest way to do this would be to make the payroll tax progressive so that less has to be paid by firms and workers if there are more workers each of whom is paid less . Also a progressive payroll tax implies increased revenues in the future even if marginal rates are a function of real wages (so inflation doesn't cause bracket creep).

In one of my favorite papers of all time MacDonald and Solow argue that employment will be increased by a progressive payroll tax for fixed revenues (zero in their model). They consider a unionized firm (the paper is very old) but evidence on wages suggests that similar things happen without formal unions. The point is that it doesn't really matter why a firm is spending the same money to pay 3 people a lot or 4 people a little. Whether the 3 are paid a lot because they work longer hours or because they have higher hourly wages, hiring them is still 3 jobs for the price of 4.

I don't see any value added from applying the benefit only in cases in which one can document the splitting of a set of tasks to share jobs. This would be complicated and I don't think there is anything especially desirable about that.

Note a historical example, the Clinton tax increase of 1993. Not all taxes were increased as the bill also expanded the Earned Income Tax Credit. Taxes were higher on average and much more progressive. The tax changes were followed not only by a huge increase in employment but also a downward shift of the Phillips curve. Theory and evidence correspond in this case. Also the proposal is wildly popular according to dozens of polls.

OK aside from that Krugman mentions hiring subsidies. Now most such subsidies would go to employers who would have hired without a subsidy. One would expect much of that money to go to the workers who would have been hired anyway (how much depends on assumptions about labor markets and/or bargaining). So ? It's an excuse to pump more money into the economy which would be good policy.

Also such subsidies have been shown to affect employment. In particular a deadline to get the subsidy (only paid if one hires before oh say November 2 2010 just to pick a date) would have a large effect on the speed of the increase in employment. Following Greg Mankiw, I'd add it on to cap and trade as part of where the revenues go. As noted by Mankiw, this is also an excuse to start subsidizing before CO2 permits are actually sold as it takes time to set up a cap and trade system.

So I propose the Greg Mankiw/soak the rich plan to help US employment.

CBS Moneywatch now features Mark Thoma about 10 posts a month.

Apropos Angry Bear exploration of "structural unemployment", Mark writes on the topic of unemployment:

The types of unemployment

Economists define three types of unemployment: frictional, structural, and cyclical. Frictional unemployment is defined as the unemployment that occurs because of people moving or changing occupations. Demographic change can also play a role in this type of unemployment since young or first-time workers tend to have higher-than-normal turnover rates as they settle into a long-term occupation. An important distinguishing feature of this type of unemployment, unlike the two that follow it, is that it is voluntary on the part of the worker.

Structural unemployment is defined as unemployment arising from technical change such as automation, or from changes in the composition of output due to variations in the types of products people demand. For example, a decline in the demand for typewriters would lead to structurally unemployed workers in the typewriter industry.

Cyclical unemployment is defined as workers losing their jobs due to business cycle fluctuations in output, i.e. the normal up and down movements in the economy as it cycles through booms and recessions over time.

What is normal unemployment?

Cyclical unemployment is the main worry of policymakers such as the Fed, and they attempt to minimize this type of unemployment through policy changes such as lowering interest rates in recessions. We are currently seeing this in action. Frictional and structural unemployment are considered normal and necessary. When these are the only two types of unemployment that exist, i.e. when cyclical unemployment has been eliminated, the economy is considered to be at full employment.

Why are frictional and structural unemployment considered normal and necessary? Frictional unemployment promotes efficient matching of workers and jobs. It allows workers to leave jobs they don’t like or aren’t good at and then find new jobs to which they are better suited. If there were never any vacancies, finding a better matching job would be much more difficult if not impossible. It would require trading jobs with someone who has the job you want and wants the job you have (and both employers would have to agree to make the hires). This means that some degree of frictional unemployment is desirable.

Structural unemployment allows the economy to implement new technology such as robots on assembly lines, and to respond to changes in demand for various products. If we didn’t allow this type of technological change, we’d be using outdated production methods and always be consuming exactly the same mix of goods at every point in time.

Once defined, and probably needing several posts as AB is finding, is the call for retraining, workers moving to where the jobs are, and incentives for US firms to locate in areas of the US needing development.

The change in the structural component could, however, be significant. I expect structural unemployment to be higher than it was, particularly in the next few years. We had too many resources in housing, finance, and automobile production, and it will take time for the economy to make the necessary structural adjustments. When this is combined with continuing globalization, as well as the higher savings rate and correspondingly lower consumption expected from households in the future, both of which cause structural change within the economy, the expectation is that the new target rate of unemployment will rise above the 4 percent level it was at before the recession.

Exactly how much it will rise and for how long is hard to say. A 5 or 6 percent rate, or even somewhat higher is certainly imaginable, but getting it right is important. If policymakers target an unemployment rate that is too low, they risk causing inflation (one reason for the high rate of inflation in the 1970s is that the Fed targeted a 4 percent unemployment rate when the actual rate of normal unemployment was much higher due to structural and demographic change). If they target a rate that is too high, then they risk having people be unnecessarily unemployed in the economy.

However, this does not mean we are completely powerless. There are ways to help with structural unemployment, though the tools for doing so aren’t as powerful as we’d like. In essence, structural unemployment arises from a mismatch between the supply of jobs in various industries and geographical locations, and the workers available to meet those needs. Thus, job training that promotes a better match of worker skills with available jobs, programs that help workers move to places where jobs exist, and programs to induce firms to locate where there is an oversupply of workers, e.g. Detroit, can mitigate some of the impact. Extended unemployment compensation can also cushion the blow for workers during the adjustment period. But the history of these programs indicates that we shouldn’t expect miracles for workers, and some degree of higher unemployment will need to be tolerated while the economy undergoes the necessary structural adjustments.

As I am arguing on the same side as Henry Kaufman, and against the kind-hearted Mark Thoma, does the phrase "left-of-center" at the top of this blog have as much Memory Meaning as the Suzanne Vega song from Pretty in Pink?

Kaufman:

During the Greenspan years (1987-2006), the Fed clearly failed to recognize the significance of the many structural changes in the financial markets—such as the rapid growth of securitization and derivatives—on economic and financial behavior and thus for its monetary policy. The Fed also failed to foresee how the 1999 repeal of the Glass-Steagall Act, which had separated commercial from investment banking since 1933, would sharply accelerate financial concentration through mergers and acquisitions and thus contribute to the "too-big-to-fail" phenomenon.

Thoma:

The hope is that an independent Fed can overcome the temptation to use monetary policy to influence elections, and also overcome the temptation to monetize the debt, and that it will do what’s best for the economy in the long-run rather than adopting the policy that maximizes the chances of politicians being reelected.

On of those people lives in reality. The other, apparently, is a good econometrician.

by Bruce Webb

H.R.3962:
Affordable Health Care for America Act (Engrossed as Agreed to or Passed by House).

Back in July I singled out what I thought was the single most important provision of the House Tri-Committee Bill in a post called Sec 116: Golden Bullet or Smoking Gun. Yesterday I followed up with a new post here called STILL the Most Important Sentence in the House HR Bill which cited the ALMOST identical language between Sec 116 of the Tri-Committee Bill and Sec 102 of the bill as brought to the floor and posted similar material in diaries at dKos, MyDD, and Open Left. Only to find out from commenter Gerald Weinand, who actually read the bill with close attention to detail, that there were significant changes in wording that drastically changed the impact of this language by shifting it forward in time and then sunsetting it.

I don't know what to make of this change, but it is the subject of a LONG piece at the BruceWeb Read the Bill Part 3; and a possible reading error. In any event going forward I think it is vital that everyone be reading off the same page. The above link to the bill as passed may not be stable, if not you can search it pretty easily from the Thomas.gov site or use the pdf version published by the GPO: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h3962eh.txt.pdf
(Update: MG supplies a better Thomas link: http://thomas.loc.gov/cgi-bin/bdquery/z?d111:h.r.03962 Thanx)

My personal belief and a hope is that a mistake has been made and that this provision was not meant to sunset when the Exchange starts operation, and that a fix will be made, it would be a true shame if the best regulatory control of insurance company profits just ended up on the cutting floor, either deliberately or by accident.