Matthew Yglesias's Blog, page 2358

The Five Year Anniversary of RomneyCare

I voted for Mitt Romney in 2002 and I think he was an excellent governor:

The best part is at the end where he says global warming is real.

Ask Not What Your Country Could Do To Reduce Health Care Costs

As a fan of the school nurse I think there's a lot to be said in favor of Paul Krugman's idea of launching a government administered public health service (or "civilian VA" as he puts it) but I also think it's a bit of a misframing to put these ideas in the context of reducing health care costs.

To the best of my knowledge, the only really reliable way to reduce public expenditures on health care services is to cap public expenditures on health care services. The way most government programs work, whether they're "mandatory" or "discretionary" is to provide for a certain amount of money and then the money gets spent. This is true both domestically and internationally. The Montgomery County Public Schools or Nova Scotia Medicare or the United States Navy has a certain budget, and then it tries to spend that budget on delivering services. American Medicare is different. It has a menu of services that it will pay for, plus a list of prices that it's willing to pay, plus a list of people who are eligible for coverage, and then it pays whatever the total consumption of services costs.

The original Ryan-Rivlin proposal controls Medicare costs by capping Medicare spending. Paul Ryan's new "Road to Prosperity" controls Medicare costs by capping Medicare spending, this time with a more severe cap. Then, separately, Ryan-Rivlin also proposes restructuring Medicare and the "Road to Prosperity" proposes restructuring it in a different way. But the restructurings don't save money, the hard cap is doing all the work in reducing expenditures. That's not necessarily a bad feature of these plans (though the Road to Prosperity cap is laughably stingy), it's actually a pretty standard way of doing budgeting.

But how we should structure Medicare is a different question from what cap, if any, should be applied to overall Medicare spending. It's like the difference between "how much should the town spend on the library?" and "should the library spend its money on new books, or facilities upgrades, or internet terminals or what?" One is a question about spending levels, and the other is a question about effective service delivery. What Krugman is proposing (and I agree) is that adding a more robust government-run element to the system would be a way of providing health care services to people in a cost effective way. I agree with that and I think there's a ton of evidence to that effect. Whether increased cost-effectiveness of service delivery would reduce overall spending over the long-term seems to me to be highly unpredictable. The total volume of Medicare costs is going to be like the total volume of FBI costs—we'll spend as much as Congress chooses to spend. Coming up with more cost effective ways to do the FBI's job might reduce FBI costs, or it might increase FBI costs if we decide that the new more awesome FBI is worth investing more in. Or if you look at the Army, I'd say that we spend too much money on it. But it's not an inefficient Army, it's a fantastic Army. The best Army in the world by a large margin. That's just a separate issue from whether it makes sense as an overall social priority to spend so much on it.

Mitt Romney Makes The Case For Boosting Aggregate Demand In His Announcement Vide0

As a former Mitt Romney 2002 voter and someone who continues to be a fan of his eloquent defense of abortion rights, I'm heartened that in his announcement video former governor Romney continues to show some flashes of the intelligent moderate he once was:

Specifically, not only does Romney rightly frame the country's most urgent problem as joblessness rather than deficits or spending, he asks the right question about it "how has this happened in the nation that leads the world in innovation and productivity?" His answer, which is also accurate, "is that President Obama's policies have failed."

But how have they failed? Romney points in the right direction by specifically noting that American workers have not become unproductive. Nor has the American economy ceased to innovate. And yet conventional conservative critiques of the Obama administration imply that one of these things has happened. They focus relentlessly on the alleged need to make the American economy more efficient, perhaps by clearing regulatory barriers or reducing the wastage of resources in the public sector. America's workers are highly productive. Consequently, were there more demand for goods and services it would be easy to employ them profitably. But limited demand is limiting hiring, and though President Obama's policies have been better than nothing they've been woefully inadequate. We need additional fiscal and monetary stimulus. And if you look at the total non-specificity of Romney's criticisms of Obama, I have a dark lurking hope that he knows this is the problem and is just afraid to say so for fear it'll discredit him with GOP primary voters.

No Sign Of Expansionary Contraction As UK Retail Sales Plummet Amidst Austerity Budgeting

The fact that UK retail sales plunged in March is an important data point that "expansionary contraction" policies are failing there, which should have important implications for the debate here.

It seems clear that if you're running a small open economy and you're facing an economic downturn, that what you want to do is batten down the fiscal hatches. This is painful, but it's better than the alternative of becoming insolvent, and you can get plenty of demand from elsewhere as low interest rates and currency depreciation boost net exports. During the current crisis, some folks have tried to extend this analysis to large countries like the United States, Japan, and Germany that have less scope for externally-led recovery (especially in a global downturn) and who don't face the same kind of fiscal risks because we borrow in deep markets denominated in our own currencies.

The government of the United Kingdom, meanwhile, is offering us an interesting kind of test case. It's interesting for three reasons. One is that they're clearly attempting such a strategy of "expansionary contraction." Two is that the Bank of England is explicitly cooperating in this strategy and attempting to offset fiscal policy's hit to aggregate demand with loose money. And three is that the UK is a kind of ambiguous case as to whether we should think of it as a large economy or a small one. What we're learning here is that the British economy is responding how a pessimist would worry that a large economy would respond, even though it's not really all that big. British net exports simply don't have the capacity to expand rapidly enough to offset the impact of tax hikes and spending cuts. If Britain were facing terrifying borrowing costs (the way that, say, Portugal and Ireland are) then it would have no good choice but just to deal with this. But Britain isn't facing terrifying bargaining costs. Like the United States, it faces a situation where investors are eager to lend money, but the ruling coalition insists on rowing in the opposite direction.

Endgame

Wasn't that your heart?

— If you want people who "make money off the community" to "serve the interests of the community" higher booze taxes make more sense than denying people liquor licenses.

— Big Ag demands the right to pollute California's Central Valley.

— AP shocked to discover that women drink bourbon.

— The transformation of retirement strikes me as the solution to the problem of wage-slavery, and not a problem to be solved.

— When it comes to macroeconomic shocks that worry me, I'm an oil man.

The Blow, "Pardon Me".

Is Our Economic Growth Fake?

Karl Marx's account of economics hews in many ways more closely to the classical economics of Adam Smith and David Ricardo than does the modern mainstream. In part as a result, you sometimes see left-right convergence in dissents from the mainstream. Thus one way of thinking about Duncan Foley's paper "The Political Economy of U.S. Output and Employment 2001–2010″ is as a left-wing version of Tyler Cowen's Great Stagnation argument and, indeed, Foley makes the link to Marxist and classical accounts explicit. Here's the core of his argument:

Service industries such as Finance, Insurance, and Real Estate, Education and Health Services, and Professional and Business Services, for which value added is imputed from incomes, are included in Gross Domestic Product, distorting measures of recession and recovery. An alternative index, Narrow Measured Value Added, which excludes all services, has similar historic correlations with employment to GDP, and tracks employment in recent business cycles better. The U.S. economy as measured by NMVA has a lower long-term real rate of growth. Long-term macroeconomic policy requires attention to some version of the productive-unproductive labor distinction of the classical political economists.

To the extent that you focus on finance as a source of phantom GDP, this will read as a left-wing argument. To the extent that you focus on health care and education as a source of phantom GDP, it will read as a right-wing argument. My view is that this style of argumentation went out in favor of accepting market prices at face value for some pretty good reasons. Does the superior aesthetic design of a Mac laptop "really" make it more valuable than a PC laptop with similar tech specs? I don't know how we would know except with reference to the fact that consumers seem to be willing to pay more.

The Base

Barack Obama continues to deliver results that his electoral base likes:

A CNN/Opinion Research Corporation survey released Monday indicates that the budget agreement that prevented a government shutdown is popular, with Americans supporting it by a 58 to 38 percent margin. But there's a partisan divide, with two-thirds of Democrats and a majority of independent voters backing the deal, and Republicans divided.

It's important for people to be clear on the asymmetries of American politics. Strongly identified conservatives are the base of the Republican Party, in a way that strongly identified progressives just aren't the base of the Democratic Party. My guess is that just about anything Barack Obama does will be met with approval by most Democrats. Naturally that ends up skewing the landscape in terms of outcomes.

Grades At The Margin

Robert Farley offers a cautionary note about my advice that college students shouldn't care too much about their grades:

From my experience on several graduate admissions committees, I can say that it is extremely difficult to apologize for low undergraduate grades. Outstanding GREs don't do it by themselves, nor does work experience, military service, etc. Fairly or not, poor undergraduate grades suggest to the admissions committee that the candidate is lazy, unfocused, and unserious about the academic project. This is true even for a school like Patterson, which is focused around policy rather than academia. I suspect that a lot of smart undergraduates don't understand that weak undergrad grades effectively lock them out of good graduate programs, even several years down the road from their college career.

Maybe so. My point, however, is that people make decisions about how to use their time at the margin and if what you're interested in doing is becoming a writer then you're better off spending your time on writing and publicizing things than on giving your term paper another round of edits. It's quite possible that all things considered, the expected value of worrying more about your grades and less about your prospects of snagging an entry level writing position is positive. But if you really want to snag an entry level writing job, you'll maximize your odds of doing that by focusing more on writing and less on grades. Traditionally that's meant working hard at the school paper, these days there's a more diverse range of new media enterprises that matter. This may well be a terrible life choice, but still it is what it is.

None of that, however, is to denigrates Jonathan Bernstein's point that actually learning things is extremely valuable. Knowing more is good, but (again, at the margin) it has a somewhat attenuated relationship to grades.

Now of course if you're honest with yourself you'll realize that the schoolwork/writing margin isn't the only margin at which it's possible to make tradeoffs. When I was in school, I spent a fair amount of time watching Elimidate which is not an activity associated with any large future payoffs.

Deleveraging: A Long Way To Go

Mike Konczal likes to write very long blog posts, which is convenient for me since I can just pull out one of his subsidiary points and add value by making a big deal out of it. For example, this post on how "housing lock" is not a major determinant of unemployment helpfully illustrates just how far we have to go as a nation in terms of climbing out from under our private sector debts:

This is why it's actually good that all the verbiage aside, the federal government actually isn't acting to reduce the deficit in any kind of serious way. With households engaging in massive deleveraging—with more deleveraging to come—it's crucial for a creditworthy borrower like the United States government to lean against the trend. The problem is that too much of what we've been doing lately has been targeted toward putting more money into the hands of high-income folks when it would do more good (both in terms of marginal utility of money and its impact on GDP) to put it in the hands of more liquidity-constrained folks further down the ladder.

The Case For The School Nurse

Libertarian economists Tyler Cowen, Arnold Kling, and Robin Hanson all enthuse about the myriad benefits of government run health care:

Similar rules prevent cheaper medicine via nurses directly managing patients, even though randomized trials suggest nurses are just as effective. This all just shows what a strong lock doctors have on medicine right? Well, consider the example of school nurses.

Most states have special laws allowing school nurses to directly manage students as patients. True, school nurses can't do everything docs can, but nurses who offered these same services to passersby at a shopping mall, without direct doc supervision, would violate medical licensing laws. Apparently, we like the comfort of knowing that medical help is onsite at school, but know that an onsite doctor would be very expensive, and so compromise with school nurses.

I'm not sure what takeaway those three have from this, but to me it goes to show that there are certain kinds of activities that are efficiently undertaken by public sector entities. In particular, "take this fixed pool of resources and apply it to improving health outcomes" is something governments are pretty good at. The UK, your local public school, and even the otherwise poverty-inducing government of Cuba are all extremely cost-effective health care delivery systems. So is the Veterans' Administration system in the United States.