Tyler Cowen's Blog, page 283

“The Tea Party and the Entitlement Fight”

Holman W. Jenkins, Jr. writes:

Not appreciated is the powerful new meme Mr. Obama has handed them, which will transform entitlement politics in our country.  The new “conservative” position will be to defend Social Security and Medicare,those middle-class rewards for a life of hard work and tax-paying, against Mr. Obama’s vast expansion of the means-tested welfare state for working-age Americans.

This will discomfit traditional free marketers.  They know Medicare and Social Security are generous in excess to the taxes that beneficiaries paid into them.

Indeed, good conservatives of a certain feather disapprove of universal entitlements because they are universal, believing government interventions should be need-based and temporary if possible.

But this reformist conservatism (to which your columnist also subscribes) appears to have had its last hurrah…Look for means testing possibly even to evolve into a new pejorative in Republican mouths, suggesting undeserved benefits for groups that mostly vote Democrat.

Here is a (possibly gated) link, in any case there is also news.google.com.

The Living Wallet (markets in everything, the culture that is Japan)

A Japanese company has finally found a possible answer to out of control spending. A so-called “Living Wallet” is equipped with runaway skills, the ability to call out for help, and dodge your ready-to-reach-out hands rolled into one. It’d be no surprise if Rebecca Bloomwood would swear by it to keep her shopaholic tendencies.

The folded wallet has wheels that make it move away once it detects your hands reaching out for it. But if you happen to get a hold of the wallet, cries of “Don’t touch me!” and “Help me!” can be heard. If you’re persistent enough, it activates its last resort to save your bills from being spent and your cards from being swiped. It automatically sends an email to your mom that you might just find you pleading to a robotic wallet, “Don’t tell my mother!”

The Living Wallet is also connected to a mobile app that checks one’s spending, all to make sure that one stays away from unnecessary shopping or any impulsive buying. That’s what you can expect once you put your Living Wallet in “Save Mode.” If you put it in “Consume Mode,” you can expect something else yet, still a little crazy.

Once you let it know that you have enough money for spending, it puts on Beethoven’s Symphony No. 9, 4th Movement.

There is a bit more here, with photos and a short video, via the excellent Mark Thorson.

Bubonic Plague

BBC: Madagascar faces a bubonic plague epidemic unless it slows the spread of the disease, experts have warned. The Red Cross and Pasteur Institute say inmates in the island’s rat-infested jails are particularly at risk.

…Madagascar had 256 plague cases and 60 deaths last year, the world’s highest recorded number.

Bubonic plague, known as the Black Death when it killed an estimated 25 million people in Europe during the Middle Ages, is now rare.

“If the plague gets into prisons there could be a sort of atomic explosion of plague within the town. The prison walls will never prevent the plague from getting out and invading the rest of the town,” said the institute’s Christophe Rogier.

Have a nice day.

How to reform Obamacare

Obviously we remain in a gridlocked political period, but if a new deal on health care reform could be cut, what would it look like?  What should it look like?  In my latest New York Times column I attempt to peer into that future.  Here is one excerpt:

One way forward would look like this: Federalize Medicaid, remove its obligations from state budgets altogether and gradually shift people from Medicaid into the health care exchanges and the network of federal insurance subsidies. One benefit would be that private insurance coverage brings better care access than Medicaid, which many doctors are reluctant to accept.

To help pay for such a major shift, the federal government would cut back on revenue sharing with the states and repeal the deductibility of state income taxes. The states should be able to afford these changes because a big financial obligation would be removed from their budgets.

By moving people from Medicaid to Obamacare, the Democrats could claim a major coverage expansion, an improvement in the quality of care and access for the poor, and a stabilization of President Obama’s legacy — even if the result isn’t exactly the Affordable Care Act as it was enacted. The Republicans could claim that they did away with Medicaid, expanded the private insurance market, and moved the nation closer to a flat-tax system by eliminating some deductions, namely those for state income taxes paid.

At the same time, I’d recommend narrowing the scope of required insurance to focus on catastrophic expenses. If insurance picks up too many small expenses, it encourages abuse and overuse of scarce resources.

The full column is here.  Please allow me to add a few remarks which did not fit into the column proper (which is strictly limited at 900 words):

1. My argument does presuppose that the exchanges can at the technical level, in some manner, end up working for enough states to carry this option forward.  I still think this is likely, but today it appears less likely than even a week ago when I drafted the column.  The biggest danger is that we enter an “adverse selection death spiral,” even if the technical problems eventually get fixed.  It has to be seen as easy for young, healthy people to buy health insurance on the exchanges, otherwise they probably will not work.

2. I view this reform as more likely to come through a Republican President than a Democrat.  A Republican has to do something which counts as “getting rid of Obamacare,” yet simply returning to the status quo ex ante would not be so popular with mainstream voters.  This is the most likely direction for such reforms.

3. I did not have enough space to talk about more immigration for physicians and nurses, liability reform, and other supply-side reforms.  They are very important.

4. I have been reading for years that ACA is just like the health care reform proposal from The Heritage Foundation from the early 1990s.  Well, sort of.  I view the proposal in my column as closer to the ideas many conservatives were pushing in the 1990s.  But if they are indeed “the same thing,” then fine, there should be no problem supporting one rather than the other!

5. I view my proposal as a third- or fourth-best exercise, it is neither first nor second best.  It may be the best we can do from where we stand, subject to the caveats in #1 however.

Here are some related remarks from Ross Douthat.  He argues that conservatives should be hoping that the exchanges succeed, because the relevant alternatives are worse and because the exchanges themselves can serve as a foundation for future reforms.

Mexico fact of the day

Today, nearly 40 percent of auto jobs on the continent are in Mexico.

There is more here, from Brad Plumer, interesting throughout.

Texas fact of the day

…two-thirds of the 109 state prisons lack air conditioning in housing areas…

…corrections officers have complained to Texas prison officials that the heat index inside facilities is often as high as 130 degrees Fahrenheit, but haven’t been able to persuade them to make changes. They said they were driven to speak out after learning that the state spent $750,000 in June to buy six new barns with exhaust fans and misters to cool pigs raised for inmate consumption.

There is more here.

Assorted links

1. My quasi-debate with Greg Mankiw (Korean language account, imagine a dialogue between Average is Over and his JEP essay on inequality).  There is more here, and here, both in Korean.  There are brief excerpts in this Korean news video.

2. Robert Graboyes on supply-side innovation in health care.

3. Brasilia 1967+ Kraftwerk.

4. Trauma as a major medical issue in Africa.

5. Which are the world’s worst cities for air pollution?  More provincial than you might think.

6. Can a famous jeweller become a great philosopher?  By the excellent Oliver Burkeman.

7. Michael R. Strain reviews Average is Over at National Review.

Tyrone on why the government shutdown and the debt ceiling crisis were brilliant Republican strategy

Tyrone, my evil twin brother, was in town visiting the other day, after a long absence.  He was upset that I gave so little space to the recent machinations in Washington, and that I assigned the events so little importance, so he asked if he could offer his own coverage in a guest post.  Since Tyrone is occasionally a lunch guest of ours, against my better judgment I said yes, so here is my dictation of his midnight sermon:

Tyrone:  I read what a strategic disaster the fracas has been for the Republican Party and for the Tea Party movement in particular, but I don’t see it.  Where I grew up, this counts as a successful stare-down.  Most of the time, the pit bull does not in fact lunge for your throat, but it is hardly a mistake for him to snarl, even if that raises his borrowing rates.

Look where we stand.  In real terms government spending has been falling.  Sequestration appears to be permanent, or it will be negotiated away by Republicans in return for preferred changes in tax and spending policy.  Leading Democratic intellectuals are talking about future fiscal bargains with no new taxes.  The American public polls as increasingly conservative.

With this sequence of events, combined with 2011, the Republicans convinced some of their opponents that they are crazy and irresponsible, without actually being crazy (though they were irresponsible, but that is the whole point).  I peaked once into Tyler’s Twitter feed, and I found several accomplished Democratic economists — yes brilliant economists, as all economists are — suggesting that any day now markets are going to notice the truly crazy character of the Republican House and price that into interest rates and stocks.  Oh what a tale!  (A more accurate reading of the more radical Republicans would in fact be more cynical and ordinary than most of the pablum served up by their critics.)  Imagine that you control only the House and can manage to convince your opponents that you are stronger and more dedicated to your cause than in fact you are.  Only the truly strong and dedicated can pull such a caper off!

Someday, if the Democrats wanted to raise the exemption level for the payroll tax, and pull in a lot of new revenue, what kind of opposition could they expect?  Probably they will shy away from that battle altogether, for fear of another Ted Cruz filibuster.

Yes, Virginia (literally), protecting the brand does sometimes mean going down with the ship.

In the longer run the Republicans will have changed the Doug Overton window on most of these issues.  (Tyler interjects: My apologies loyal MR readers, Tyrone has no Ph.d., not even a Masters, and thus he misuses terminology as would a mere child.)  Even if most Americans do not agree, it is now considered common to believe and to argue publicly that Obamacare represents the end of freedom in our time.  If Obamacare turns out to fail in the eyes of the public, that condemnatory view is being held in the back of people’s minds, whether they admit it or not, whether they agree or not.  They will start to agree more and more, the less generous their Medicare benefits look as time passes.  The future counterrevolution in redistribution is going to have to come from somewhere and it is a major victory to cement the word “Obamacare” as a hypostatized “thingie” in people’s minds, for future reference.

The Republican tactics understand the importance of skewed pay-offs.  In an age of political gridlock, the goal is not to maximize the expected value of your image, any more than you would do the same on a date.  Rather the goal is to maximize the chances of moving your agenda forward, conditional on the existence of world-states where that might be possible.  The harder it is to pull off change, the stupider your strategy will look in most world-states, but hey that is the price of admission to this game.  Capital is to be periodically run down, and if in politics, as in management more generally, if you always look good you are doing something badly wrong.

Another fallacy is that no DC crisis would have focused more attention on the failings of the Obamacare exchanges in a useful manner.  People, that is small potatoes.  No one is going to repeal or even modify ACA because of a few weeks’ bad publicity at the opening.  (Recall the Medicare prescription drug bill, which took weeks to get off the ground but now is beloved and is part of the permanent furniture of the universe, like Supersymmetry or quantum gravity.)  If Obamacare is really going to do poorly, it is better if we build up high or least modest expectations for it.  Imagine the Christmas present of learning you don’t really have insurance coverage after all.  Or the New Year’s resolution that after you have been billed three times for the same policy, you vow to pay for only one of them and live with the bad credit rating until it gets straightened out.  How about extreme adverse selection into the exchanges, resulting in 50-100% premium hikes in the first year of operations?  (The lower premia are now, the better!  Bread, peace, land!  Ach du grüne Neune!)  That’s what will get further traction for the Tea Party on Obamacare, not a bunch of bad reviews on opening day, as if the policy were no more than a mid-tier Jennifer Aniston movie (I can no longer refer to Sandra Bullock in this context), to be swatted down by mild tut-tuts of disapproval and inconvenience.

The very best victories are often described as ignominious retreats.

Tyler again: Readers, I am sorry to subject you to such rants.  But Tyrone insisted.  In fact he threatened that, if I did not comply with his request, he would write a lengthy review of Average is Over, for which outlet I am not sure, perhaps an average outlet.  He threatened to shutter our common household.  He prophesied that cats would lie down with dogs.  He even threatened to default on our joint credit card bill, ruining my credit rating forever.  And people, you now all know just how powerful such threats can be.

Michael Pettis, *Avoiding the Fall*, and China’s economic growth

Last night I read the new and excellent Michael Pettis book Avoiding the Fall: China’s Economic Restructuring.  It is the single best treatment I know for understanding the dilemmas of the current Chinese economy and the need for restructuring.  My favorite bits are those comparing the current Chinese economy to the Brazilian growth of the 1960s and 70s, also investment-driven, and lasting longer than most people thought possible, and culminating in the crack-up of the 1980s, which turned out to be a lost decade for Brazil.

By the way, China’s economy continues to defy the China skeptics (a group which includes me):

China’s economy expanded 7.8 per cent in the third quarter from the same period a year earlier, marking an acceleration from the second quarter when it grew by 7.5 per cent.

The rebound in the world’s second-largest economy was largely the result of government efforts to shore up growth with looser monetary policy and a “mini-stimulus” of investment in infrastructure such as rail and subway systems.

The full FT article is here.  As Pettis stresses, such developments are likely to intensify the eventual “discontinuity,” but of course the China skeptics have not yet been proven right…

Assorted links

1. Chris Blattman on foreign aid.

2. Buying shares in sports athletes.

3. Why art dealers don’t want to talk about prices.

4. MIE: Japanese wine for cats.

5. Ezra Klein on tax increases.

6.  Where the exchanges are at.  The legal issues if Obamacare is not up and running by 2014.

7. Liberal economist expelled from Beijing University.