Saturday, February 8, 2014

Saturday, February 8, 2014

THE ABCT ANALYSIS OF THE ECONOMY IN PDF:  This is the Austrian analysis of the economy we are now in

PURSUING SELF INTEREST IS PURSUING PUBLIC GOOD: This is true.

BEARS A CLOSE READ:







The Economist Who Exposed ObamaCare

The Chicago professor examined the law's incentives for the poor not to get a job or work harder, and this week Beltway budgeteers agreed.

Feb. 7, 2014 6:30 p.m. ET



In September, two weeks before the Affordable Care Act was due to launch, President Obama declared that "there's no serious evidence that the law . . . is holding back economic growth." As for repealing ObamaCare, he added, "That's not an agenda for economic growth. You're not going to meet an economist who says that that's a number-one priority in terms of boosting growth and jobs in this country—at least not a serious economist."
Casey Mulligan Ken Fallin
In a way, Mr. Obama had a point: "Never met him," says economist Casey Mulligan. If the unfamiliarity is mutual, the confusion is all presidential. Mr. Mulligan studies how government choices influence the incentives and rewards for work—and many more people may recognize the University of Chicago professor as a serious economist after this week. That's because, more than anyone, Mr. Mulligan is responsible for the still-raging furor over the Congressional Budget Office's conclusion that ObamaCare will, in fact, harm growth and jobs.
Rarely are political tempers so raw over an 11-page appendix to a dense budget projection for the next decade. But then the CBO—Congress's official fiscal scorekeeper, widely revered by Democrats and Republicans alike as the gold standard of economic analysis—reported that by 2024 the equivalent of 2.5 million Americans who were otherwise willing and able to work before ObamaCare will work less or not at all as a result of ObamaCare.
As the CBO admits, that's a "substantially larger" and "considerably higher" subtraction to the labor force than the mere 800,000 the budget office estimated in 2010. The overall level of labor will fall by 1.5% to 2% over the decade, the CBO figures.
Mr. Mulligan's empirical research puts the best estimate of the contraction at 3%. The CBO still has some of the economics wrong, he said in a phone interview Thursday, "but, boy, it's a lot better to be off by a factor of two than a factor of six."
The CBO's intellectual conversion is all the more notable for accepting Mr. Mulligan's premise, which is that what economists call "implicit marginal tax rates" in ObamaCare make work less financially valuable for lower-income Americans. Because the insurance subsidies are tied to income and phase out as cash wages rise, some people will have the incentive to remain poorer in order to continue capturing higher benefits. Another way of putting it is that taking away benefits has the same effect as a direct tax, so lower-income workers are discouraged from climbing the income ladder by working harder, logging extra hours, taking a promotion or investing in their future earnings through job training or education.
The CBO works in mysterious ways, but its commentary and a footnote suggest that two National Bureau of Economic Research papers Mr. Mulligan published last August were "roughly" the most important drivers of this revision to its model. In short, the CBO has pulled this economist's arguments and analysis from the fringes to center of the health-care debate.
For his part, Mr. Mulligan declines to take too much credit. "I'm not an expert in that town, Washington," he says, "but I showed them my work and I know they listened, carefully."
At a February 2013 hearing he pointed out several discrepancies between the CBO's marginal-tax-rate work and its health-care work, and, he says, "That couldn't persist forever. There would have to be a time where they would reconcile those two approaches somehow." More to the point, "I knew eventually it would be acknowledged that when you pay people for being low income you are going to have more low-income people."
Mr. Mulligan thinks the CBO deserves particular credit for learning and then revising the old 800,000 number, not least because so many liberals cited it to dispute the claims of ObamaCare's critics. The new finding might have prompted a debate about the marginal tax rates confronting the poor, but—well, it didn't.
Instead, liberals have turned to claiming that ObamaCare's missing workers will be a gift to society. Since employers aren't cutting jobs per se through layoffs or hourly take-backs, people are merely choosing rationally to supply less labor. Thanks to ObamaCare, we're told, Americans can finally quit the salt mines and blacking factories and retire early, or spend more time with the children, or become artists.
Mr. Mulligan reserves particular scorn for the economists making this "eliminated from the drudgery of labor market" argument, which he views as a form of trahison des clercs. "I don't know what their intentions are," he says, choosing his words carefully, "but it looks like they're trying to leverage the lack of economic education in their audience by making these sorts of points."
A job, Mr. Mulligan explains, "is a transaction between buyers and sellers. When a transaction doesn't happen, it doesn't happen. We know that it doesn't matter on which side of the market you put the disincentives, the results are the same. . . . In this case you're putting an implicit tax on work for households, and employers aren't willing to compensate the households enough so they'll still work." Jobs can be destroyed by sellers (workers) as much as buyers (businesses).
He adds: "I can understand something like cigarettes and people believe that there's too much smoking, so we put a tax on cigarettes, so people smoke less, and we say that's a good thing. OK. But are we saying we were working too much before? Is that the new argument? I mean make up your mind. We've been complaining for six years now that there's not enough work being done. . . . Even before the recession there was too little work in the economy. Now all of a sudden we wake up and say we're glad that people are working less? We're pursuing our dreams?"
The larger betrayal, Mr. Mulligan argues, is that the same economists now praising the great shrinking workforce used to claim that ObamaCare would expand the labor market.
He points to a 2011 letter organized by Harvard's David Cutler and the University of Chicago's Harold Pollack, signed by dozens of left-leaning economists including Nobel laureates, stating "our strong conclusion" that ObamaCare will strengthen the economy and create 250,000 to 400,000 jobs annually. (Mr. Cutler has since qualified and walked back some of his claims.)
"Why didn't they say, no, we didn't mean the labor market's going to get bigger. We mean it's going to get smaller in a good way," Mr. Mulligan wonders. "I'm unhappy with that, to be honest, as an American, as an economist. Those kind of conclusions are tarnishing the field of economics, which is a great, maybe the greatest, field. They're sure not making it look good by doing stuff like that."
Mr. Mulligan's investigation into the Affordable Care Act builds on his earlier work studying the 2009 Recovery and Reinvestment Act, aka the stimulus.
The Keynesian economists who dominate Mr. Obama's Washington are preoccupied by demand, and their explanation for persistently high post-recession unemployment is weak demand for goods and thus demand for labor. Mr. Mulligan, by contrast, studies the supply of labor and attributes the state of the economy in large part to the expansion of the entitlement and welfare state, such as the surge in food stamps, unemployment benefits, Medicaid and other safety-net programs. As these benefits were enriched and extended to more people by the stimulus, he argues in his 2012 book "The Redistribution Recession," they were responsible for about half the drop in work hours since 2007, and possibly more.
The nearby chart tracks marginal tax rates over time for nonelderly household heads and spouses with median earnings. This index is a population-weighted average over various ages, jobs, employment decisions like full-time versus part-time. Basically, the chart shows the extra taxes paid and government benefits foregone as a result of earning an extra dollar of income.
The stimulus caused a spike in marginal rates, but at least it was temporary. ObamaCare will bring them permanently into the 47% range, or seven percentage points higher than in early 2007. Mr. Mulligan says the main response to his calculations is that people "didn't realize the cumulative effect of these things together as a package to discourage work."
Mr. Mulligan is uncomfortable speculating about whether the benefits of this shift outweigh the costs. Perhaps the public was willing to trade market efficiency for more income security after the 2008 crisis. "As an economist I can't argue with that," he says. "The thing that I argue with is the denial that there is a trade-off. I argue with the denial that if you pay unemployed people you're going to get more unemployed people. There are consequences of that. That doesn't mean the consequences aren't worth paying. But you can't deny the consequences for the labor market."
One major risk is slower economic growth over time as people leave the workforce and contribute less to national prosperity. Another is that social programs with high marginal rates end up perpetuating the problems they're supposed to be alleviating.
So amid the current wave of liberal ObamaCare denial about these realities, how did Mr. Mulligan end up conducting such "unconventional" research?
"Unconventional?" he asks with more than a little disbelief. "It's not unconventional at all. The critique I get is that it's not complicated enough."
Well, then how come the CBO's adoption of his insights is causing such a ruckus?
"I would phrase the question a little differently," Mr. Mulligan responds, "which is: Why didn't conventional economic analysis make its way to Washington? Why was I the only delivery boy? Why wasn't there a laundry list?" The charitable explanation, he says, is that there was "a general lack of awareness" and economists simply didn't realize everything that government was doing to undermine incentives for work. "You have to dig into it and see it," he explains. "The Affordable Care Act's not going to come and shake you out of your bed and say, 'Look what's in me.' "
Judging by their reaction to the CBO report, the less charitable explanation is that liberals would have preferred that the public never found out.
Mr. Rago is a member of the Journal's editorial board.



  • Thursday, February 6, 2014

    Thursday, February 6, 2014

    HERE'S A PREDICTION THAT'S APT TO COME TRUE:

    Ambrose Evans-Pritchard

    Ambrose Evans-Pritchard has covered world politics and economics for 30 years, based in Europe, the US, and Latin America. He joined the Telegraph in 1991, serving as Washington correspondent and later Europe correspondent in Brussels. He is now International Business Editor in London. Subscribe to the City Briefing e-mail.

    SocGen bear growls: deflation shock-wave from Asia to trigger global recession


    The Soc Gen bear is in a foul mood (Photo: Reuters)
    Albert Edwards from Societe Generale has returned from two weeks holiday in a completely foul mood.
    "The ongoing emerging market debacle will be less contained than sub-prime ultimately proved to be. The simple fact is that US and global profits growth have reached tipping point and the unfolding EM crisis will push global profits and thereafter the global economy into deep recession."
    What we are seeing is a "direct replay" of the East Asia crisis of 1997 but on a bigger scale. A strong dollar/weak yen world is an "incendiary mix" for emerging markets. It tightens liquidity while delivering a trade shock to weaker economies.
    Analysts are slashing their forecasts at an "all-time record rate – this is wholly inconsistent with talk of economic acceleration".
    "The dire profits situation will only get worse as EM implodes and waves of deflation flow from Asia to overwhelm the fragile situation in the US and Europe."
    This week's slump in America's ISM manufacturing gauge is the "straw in the wind" of what is to come. "Even if the Fed resumes massive QE at some point as the world melts down, and markets desperately attempt their return to the dream trance, they will instead find themselves locked into a Freddy Krueger-like nightmare in which phase 3 of this secular bear market takes equity valuations down to levels not seen for a generation."
    Albert and SG's Andrew Lapthorne say profits have already slumped to near zero growth if you use MSCI reported earning rather than the "made-up" pro-forma IBES data. .
    EM profits have been negative for two years already. The global equity rally has been driven by QE fumes.
    I hate to think what would happen if Albert were right. The world cannot take such an outcome in its present enfeebled condition.
    It would push China into a dangerous crisis, greatly raising the risk a diversionary military clash with Japan, which would in turn embroil the US in a Pacific War.
    It would doom any chance of recovery in southern Europe, sending debt trajectories and jobless rates through the roof. The European Project would disintegrate in acrimony, with a chain of sovereign defaults pushing Germany into depression.
    Britain would spin into another financial cataclysm, this time having to rescue banks with huge exposure to emerging markets and China (through Hong Kong). This would be hard to explain to long-suffering British taxpayers a second time. The retribution that bankers deftly avoided post-Lehman would be crushing.
    Much of the world would revert to capital controls, locking down trillions of foreign wealth much as the Bolshevik revolution wiped out French investors. Western pensioners would face a greatly impoverished old age.
    It would cause the further implosion of Argentina, risking a fresh Falklands War with Britain. It would endanger Brazil's democracy, and tempt military coups in several Latin American states.
    It would lead to the economic collapse of Russia, with fearsome implications for Ukraine and ex-Soviet sphere.
    I could go on,
    But in the end I am not as gloomy as Albert  — though I share his fears over the gravity of the EM crisis, and the implications of Fed tightening.
    The financial world is ultimately smoke and mirrors. Debt is a mirage. Creditor claims can be "re-arranged" at the point of a bayonet if need be, and often are.
    You can conjure all kinds of tricks, and wave all kinds of magic wands. A determined central bank – backed by a credible government and a cohesive society – can achieve miracles. Any deflationary shock can overpowered.
    Political will can always triumph over these setbacks. To borrow from the Habsburgs, the situation may be desperate but it is not serious. So waltz on, and keep the champagne flowing.

    Tuesday, February 4, 2014

    Tuesday, February 4, 2014

    UNDER CATEGORY OF NOTHING NEW, BUT STILL SHOCKING: Grounds for discouragement or maybe suicide?  As long as we have political class, and as long as we practice majority rule, as long as we have gerrymandering to insure minority (black) representation in Congress, as long as we have elected members of Congress who are economics illiterates, we will keep digging our debt hole deeper and robbing from the future.  One suspects that long before reforms we will have a cataclysmic collapse of the financial system.

    THIS SPEAKS TO THE DILEMMA CONFRONTING THE WEST: There is a solution and his name is John Cowperthwaite. Bring him back.

    Monday, February 3, 2014

    Monday, February 3, 2014

    PRETTY SAYS IT ALL ABOUT OBAMACARE OBAMA ADMINISTRATION INITIATIVES:

    Michael Barone: How ObamaCare Misreads America

    The Washington elites who designed the law must be bewildered: Why doesn't everyone behave as they do?

    Feb. 2, 2014 7:33 p.m. ET
    People learn from their mistakes. Or they can—and should. Which is the reason we should try to learn from the revelations of mistakes about health care and health insurance since the passage of ObamaCare. The evidence is not all in. But it seems that Americans are not behaving as ObamaCare's architects—and many critics—expected.
    Start with the assumption that just about everyone wants health insurance. You can easily find polls that support this proposition. ObamaCare architects assumed that if you offered health insurance with subsidies for those with relatively modest incomes, those currently uninsured would flock to apply. So far that seems not to have happened. A McKinsey & Co. survey of those thought to be eligible for ObamaCare health-care exchanges found that only 11% of those who bought new coverage between November 2013 and January 2014 were previously uninsured.
    Two small insurance companies told Wall Street Journal reporters for a Jan. 17 article that only 25% and 35% of those purchasing their policies were previously uninsured. Larger insurers don't yet have numbers, but it seems that far fewer of the uninsured than expected are signing up. The latest Kaiser Family Foundation poll reported that only 24% of uninsured under 65 had a favorable view of ObamaCare while 47% had an unfavorable view.
    One reason may be that ObamaCare requires policies to cover not just the expenses of catastrophic illness—the sort of thing auto and home insurance policies cover—but routine medical expenses and procedures that many individuals will not need. To that extent ObamaCare policies are not insurance but prepayment of routine expenses. Apparently many of the uninsured aren't interested in prepaying for health insurance any more than they are interested in prepaying their credit cards.
    Corbis
    A second assumption of ObamaCare's architects is that health insurance will make people healthier. That assumption has been tested in Oregon. In 2008 the state government, with limited Medicaid funds, held a lottery to determine which people who were eligible for Medicaid would be enrolled. The result was an unusual randomized control trial of similarly motivated people with and without insurance. The results, reported in the May 2013 New England Journal of Medicine, were that after two years there was no significant difference between insured and uninsured in blood-sugar level, blood pressure and cholesterol levels—although those with Medicaid saved money and were less likely to suffer depression.
    A third assumption is that those with health insurance are more likely to seek care from physicians and less likely to go to emergency rooms. But the Oregon health study showed that those with Medicaid were 40% more likely to go to emergency rooms than those without insurance.
    None of these three assumptions has been conclusively disproved. ObamaCare enrollment will go on at least until March 31 and may accelerate. The Oregon health study covered only two years, because Oregon eventually got more Medicaid funding and ended the lottery. Long-term health outcomes for Medicaid enrollees may turn out to be better than for those uncovered.
    But the apparent discrepancies between what policy makers expected and how many of the intended beneficiaries of ObamaCare seem to be behaving reminds me of the divide described in Charles Murray's 2012 book "Coming Apart: The State of White America, 1960-2010." Mr. Murray, my colleague at the American Enterprise Institute, documents the sharp differences in behavior between the upper (in education and income) 20% and the bottom 30% of white Americans.
    The upper group has low rates of divorce and single parenthood and high rates of what Harvard political scientist Robert Putnam calls social connectedness. They belong to voluntary associations and churches; they vote and follow public-policy debates. They tend to be connected, engaged and conscientious. The lower (income and education) group has high rates of divorce and single parenthood and low rates of social connectedness. They tend to be disconnected and disengaged, and sometimes heedless. It should not be surprising that they may not respond to the same health-care mandates, incentives and nudges that policy makers and others in the upper group do.
    Liberal policy makers have long regarded Scandinavian policies as a model. If a welfare state can work there, they have long argued, it can work here. But the Scandinavian countries have homogeneous populations with high levels of trust, conscientiousness and social connectedness. It is not a coincidence that in the two states with the highest levels of the social connectedness Mr. Putnam described, North Dakota and Minnesota, most people are of Scandinavian or German descent. But policies that work well in Scandinavia or Minnesota and North Dakota won't necessarily work well in a wider United States, where a much larger proportion of people are socially disconnected.
    And such policies may not work as well as they might have in the United States of the 1950s and early 1960s, in which disconnectedness was much less common. That was an America in what I call the Midcentury Moment, a period when World War II and unexpected postwar prosperity produced a conformist and (mostly) culturally homogeneous nation with low rates of divorce and single parenthood, and high rates of social connectedness. A nation accustomed to a universal military draft and wage-and-price controls, and in which increasing numbers worked for giant firms and were members of giant labor unions, probably would have been more amenable to a centralized command-and-control policy like ObamaCare than the culturally fragmented America of today.
    In the long run of American history, the Midcentury Moment was just that—a moment, an exception, not the rule. We have been in some sense a multicultural nation from our colonial beginnings. The Founding Fathers, seeking to unite Puritan New England, Anglican Virginia, Dutch New York and Quaker Pennsylvania with the Scots-Irish warriors on the Appalachian frontier, determined that the federal government would impose no religious test for office and make no law regarding a religious establishment. They provided for a limited central government and a wide free-trade zone in which local cultures could prevail, local preachers could convert, and local entrepreneurs could innovate.
    ObamaCare cuts against this grain. The trouble that has resulted—from the architects' apparent failures to anticipate the behavior of fellow citizens who don't share their approach to the world, and the architects' determination to impose their mores, such as contraception coverage, on a multicultural nation—is a lesson to national policy makers, conservative as well as liberal. Govern lightly if you want to govern this culturally diverse nation well.

    Sunday, February 2, 2014

    Sunday, February 2, 2014

    DETROIT FACTS:

    Progressivism Kills 
    Detroit is not healthy for children and other living things. 


    Text   
    Comments
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    Kevin D. Williamson 
    There are many horrific stories to be told about the implosion of Detroit, once the nation’s most prosperous city, today its poorest. There is the story of its corrupt public institutions, its feckless leaders, its poisonous racial politics, its practically nonexistent economy, the riots that have led to its thrice being occupied by federal troops. The most horrific story may be that of the death of its children.
    Detroit has the highest child-mortality rate of any American city, exceeding that of many parts of what we used to call the Third World. The rate of death before the age of 18 in Detroit is nearly three times New York City’s, and its infant-mortality rate exceeds that of Botswana. The main cause of premature death among the children of Detroit is premature birth — the second is murder. While the city’s murder rate among adults is nothing to be proud of, more horrifying is the fact that between 30 and 40 children are murdered in Detroit in a typical year. Some of those children are nine-month-olds killed by rifle fire in their beds; some are budding criminals in their late teens — and each of those situations offers its own unique horrors. So dangerous is the city that children are being armed by their parents, which has predictable consequences. “I work in the Wayne County Juvenile Court, and these children are obtaining guns from adults,” children’s-law attorney Lynda White told the Detroit News, which has been conducting an in-depth investigation of how Detroit’s children are dying. “They’re obtaining guns illegally from people who are supposed to be responsible and people who are supposed to protect them. And if that person who has a huge influence in your life is giving you a gun, some of them tend to think it’s okay to carry it. And they’re being told, ‘You need this for your protection, you live in Detroit.’”
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    Detroit represents nothing less than progressivism in its final stage of decadence: Worried that unionized public-sector workers are looting your city? Detroit is already bankrupt, unable to provide basic services expected of it — half the streetlights don’t work, transit has been reduced, neighborhoods go unpatrolled. Worried that public-sector unions are ruining your schools? Detroit’s were ruined a generation or more ago, the results of which are everywhere to be seen in the city. Worried that Obamacare is going to ruin our health-care markets? General-practice physicians are hard to find in Detroit, and those willing to accept Medicaid — which covers a great swath of Detroit’s population — are rarer still. Worried about the permissive culture? Four out of five of Detroit’s children are born out of wedlock. Worried that government is making it difficult for businesses to thrive? Many people in Detroit have to travel miles to find a grocery store. This is the endgame of welfare economics: What good is Medicaid if there are no doctors? What good are food stamps where there is no food? What good are “free” schools if you’re so afraid to send your children there that you feel it prudent to arm them first?
    Detroit is what Democrats do. The last Republican elected mayor of Detroit took office during the Eisenhower administration. The decay of Detroit is not the inevitable outcome of the decline of the automotive industry: The automotive industry is thriving in the United States — but not in Detroit. It isn’t white flight: The black middle class has left Detroit as fast as it can. The model of Detroit politics is startlingly familiar in its fundamentals, distinguished only by its degree of advancement: Advance the interests of public-sector unions and politically connected business cronies, expand the relative size of the public sector remorselessly — and when opposed, cry “Racism!” When people vote with their feet, cry “Racism!” When the budget just won’t balance, cry “Racism!” Never mind that the current mayor of Detroit is the first non–African American to hold that job since the 1970s, or that, as one Detroit News columnist put it, “black nationalism . . . is now the dominant ideology of the [city] council” — somewhere, there must be a somebody else to blame, preferably: aged, portly, white, male, and Republican. No less a fool than Ed Schultz blamed the straits of this exemplar of Democratic single-party rule on “a lot of Republican policies.” Melissa Harris-Perry, “America’s leading public intellectual,” blames Detroit’s problems on its conservatism and small government, oblivious to the fact that Detroit maintains twice as many city employees per resident as do larger cities such as Fort Worth and Indianapolis, and three times as many as liberal San Jose.
    The result of all that municipal “investment”? For children newborn through age 18, Detroit sees 120 deaths per 100,000 each year — a rate 26 percent higher than second-place child-killer Philadelphia. That’s nearly two and a half times the rate in Los Angeles, which isn’t exactly a leafy suburban paradise. Every time our progressive friends come to us with another idea for transferring wealth from the productive economy to them and their friends, they scold us: “Think of the children!” But those who resist their efforts to do to the country at large what they have done to Detroit are thinking of the children.
    There used to be a popular bumper sticker reading, “War Is Not Healthy for Children and Other Living Things.” War is hell, Detroit merely hellish. The difference is, we don’t send children off to war.
    — Kevin D. Williamson is roving reporter for National Review.