Economics, Health Care, Pethokoukis

Access to coverage is not access to care: California Medicaid edition

Who are you going to believe, California health officials or California doctors? From The New York Times:

In California, with the nation’s largest Medicaid population, many doctors say they are already overwhelmed and are unable to take on more low-income patients. Dr. Hector Flores, a primary care doctor in East Los Angeles whose practice has 26,000 patients, more than a third of whom are on Medicaid, said he could accommodate an additional 1,000 Medicaid patients at most.

“There could easily be 10,000 patients looking for us, and we’re just not going to be able to serve them,” said Dr. Flores, who is also the chairman of the family medicine department at White Memorial Medical Center in Los Angeles.

California officials say they are confident that access will not be an issue. But the state is expecting to add as many as two million people to its Medicaid rolls over the next two years — far more than any other state. They will be joining more than seven million people who are already in the program here. One million of the newly eligible will probably be enrolled by July 2014, said Mari Cantwell, an official with the state’s Department of Health Care Services.

On top of that, only about 57 percent of doctors in California accept new Medicaid patients, according to a study published last year in the journal Health Affairs — the second-lowest rate in the nation after New Jersey. Payment rates for Medicaid, known in California as Medi-Cal, are also low here compared with most states, and are being cut by an additional 10 percent in some cases just as the expansion begins.

If nothing else, this sounds like a great reason to expand what nurse practitioners area allowed to do. And here comes Watson!

Pethokoukis, Economics, U.S. Economy

All the ways — well, at least some of them — in which this economic recovery is totally disappointing

Federal Reserve Bank of Dallas

Federal Reserve Bank of Dallas

The above chart from the Dallas Fed looks at several economic indicators in the 69 months since each business-cycle peak, comparing the Great Recession to six previous recessions. And it is not a flattering comparison. From the study:

1. Real GDP is 5.3 percent higher than it was when the Great Recession began, compared with average real GDP growth of more than 20 percent for the six previous recoveries at this same point in the business cycle. The chart also indicates that after 69 months (or 23 quarters) following the NBER peak, real GDP growth for the previous recoveries ranged from 15 to 35 percent.

2.The coincident index and its four economic indicators are also highlighted in Chart 2. Through September 2013, the coincident index is 0.8 percent below its value when the Great Recession  began. By comparison, all of the six previous recoveries had surpassed their NBER recession  peak values an average 13.8 percent by this same point in the business cycle, ranging from an  increase of 8 to 24 percent.

3. For payroll employment, jobs are 1.3 percent below the level when the Great Recession began, compared with an average increase above peak of 10.2 percent for the previous six business cycles.

4. Industrial production remains 0.8 percent below its level when the Great Recession began, compared with an average increase of 16.3 percent for the previous six business cycles.

5. The only two indicators that have surpassed their pre-Great Recession peak levels are personal income and manufacturing and trade sales. Personal income is 3.1 percent higher than when the Great Recession began, and manufacturing and trade sales is 0.1 percent higher. However, these increases compare poorly with average increases over the past six business cycles of 17.3 percent for personal income and 19.5 percent for manufacturing and trade sales.

Pethokoukis, Economics, U.S. Economy

Occupy the Vatican? A progressive pope? Not really

Image Credit: Philip Chidell /

Image Credit: Philip Chidell /

American conservatives — perhaps to a person — were outraged and disappointed by Pope Francis’s tough statement about free markets and capitalism and his highlighting of the harm caused by inequality, consumerism, and “trickle-down economics.” Habemus Anti-Capitalist Papam!

No, wait. That’s not quite correct. American progressives — perhaps to a person — expected American conservatives to freak out. “Pope Francis basically just endorsed the de Blasio agenda!” and such. But conservatives pretty much didn’t react that way. Not surprising, really. Christians on the right are accustomed to Sunday sermons denouncing crass materialism, and exhorting the faithful to help the poor, orphans, widows. “Do not store up for yourselves treasures on earth,” demands the Gospel of St. Matthew. “But store up for yourselves treasures in heaven.” And this, a few verses later: “No one can serve two masters. … You cannot serve both God and money.”

Conservatives — whether churchgoers or not — are not utopians, They understand market economies will never turn the world temporal into Paradise (while at the same time realizing that command-and-control economies have frequently produced a kind of hell on earth). Conservatives value the “safety net” to help those whom the pope calls the “excluded.” But conservatives also want to reform the safety net so more resources are devoted to raising the living standards of the truly needy rather than subsidizing the rich, moving the jobless toward work and self sufficiency, and increasing social mobility and equality of opportunity.

Likewise, few conservatives would disagree with this bit of the pope’s statement: “The culture of prosperity deadens us; we are thrilled if the market offers us something new to purchase; and in the meantime all those lives stunted for lack of opportunity seem a mere spectacle; they fail to move us.”

Conservatives embrace markets because they support a free society — but also because market economies produce the sort of prosperity that enables true human flourishing, one where we can better define our future as we see fit and achieve success on the basis of merit and hard work. After all, it was innovative capitalism — something the pope surely understands even if actual anti-capitalists don’t — that raised the average real income of the West over the past two centuries from $3 a day to $140. That might not qualify as a miracle, but it is surely a wonder — one that has given us lots better stuff and lots more opportunity to lead lives of deep fulfillment.

And progressives are kidding themselves if they think the pope was somehow embracing an Elizabethian (Warren) agenda of sky-high tax rates and an endlessly expanding welfare state. (Indeed, the pope denounced “a simple welfare mentality.”) How cramped an interpretation. Pope Francis’s vision transcends such parochial concerns. He is a global figure looking at crony capitalism in South America, massive youth unemployment in big government Europe, tremendous wealth disparities in state capitalist Asia, and deep poverty in Africa.

As the Christian and libertarian economist Deirdre McCloskey writes in The Bourgeois Virtues: Ethics for an Age of Commerce, the good society can be built on the cardinal and theological virtues that also support a prosperous commercial society. The virtue of Courage, for example “to venture on new ways of business … to overcome the fear of change, to bear defeat unto bankruptcy, to be courteous to new ideas, to wake up the next morning and face fresh work with cheer.” And Hope “to imagine a better machine … to see the future as something other than stagnation or eternal recurrence, to infuse the day’s work with a purpose, seen one’s labor as a glorious calling. … The claim here is that modern capitalism does not need to be offset to be good. Capitalism on the contrary can be virtuous. In a fallen world, the bourgeois is not perfect. But it is better than any available alternative.”

McCloskey goes on to write that capitalism needs to be “inspired, moralized, completed.” That sounds exactly like what Pope Francis is trying to do.


Pethokoukis, Economics, U.S. Economy

Actually, global income inequality seems to be on the decline


As a follow-up to my blog post on the Pope Francis and his recent statement on economic inequality, here is what’s been happening on inequality globally. While inequality has increased within countries since 1970s — it’s not just America, gang — it’s dropped between countries. See the above chart from this study (h/t to Overcoming Bias.) When you combine the two, it looks like inequality has been declining. And the conclusion of the researchers:

First, between inequality is experiencing an unprecedented decline in the last decade. Even though the bulk of this decline is due to the performance of China and other Asian countries, we have shown that a (weaker)  declining trend survives even when these countries are excluded from the analysis.

Second, within inequality, in the last decade, is increasing and almost all of its growing relevance is led by the increased level of inequality within China. As a consequence, total inequality receives two contrasting inputs. On the one hand, the powerful convergence force associated to the reduction of the Chinese gap with richer countries;  on the other hand, the powerful divergence force associated both to the enlargement of  the Chinese gap with poorer countries and to the greater weight of the Chinese within  inequality.

Third, apart from this fundamental role played by China, the world  distribution of income forty years ago does not appear fundamentally changed in most
recent times.


Pethokoukis, Economics, U.S. Economy

Is the US government badly underestimating innovation and productivity?


If America really is becoming more innovative and Google-rrific, how come it doesn’t show up in the data? As techno-pessimist Robert Gordon has put it (here using productivity as a measure of innovation):

Technical change is not accelerating if we compare the 2.33% growth rate of the 80 years before 1972 with the 1.55% average growth rate of the bars since 1972. Also, at a shorter horizon, technical change is not accelerating if we compare the record of the past eight years (2004-12) with the previous eight “dotcom” years (1996-2004).

But maybe government statistics are missing something. Economic historian Joel Mokyr explores this idea over at Russ Robert’s must-listen EconTalk podcast. Here is a sample:

But we always have to keep in mind that these measures were designed for sort of a wheat and steel economies. So an economy that uses up a bunch of goods of more or less of constant quality, the same sort of basket of goods are being produced, and if we can next year produce more of it — because we have better machines or better technology or more work harder or more people join the labor force — we actually have more output and so we have more income. And we are rich and everything is good.

The problem of course occurs when you start looking at these things over longer periods of time, and you start realizing that it becomes very, very difficult to compare two years in which a whole bunch of new goods and services have become available that a previous generation not only didn’t have access to but really couldn’t even dream about. So, we have an economics concept which we call ‘consumer surplus,’ which is basically a measure of how much better off you are as a result of a new good or a new service, and sort of different ways of measuring it, standard ways of trying to imagine going to a consumer and saying, Well, how much would you demand to be paid if we took that good away from you and put you back in 20 years ago when that good didn’t exist?

So we can play this game with cell phones and we can play this game with GPS (global positioning systems) and we can play this game–and so you’ve got how much would you have to be paid if we took the GPS out of your car, and you scratch your head and say you’ve got to go back and buy maps and study them while I’m driving. So there’s a loss of wealth. It’s probably not huge. So, my example of a very small invention for which we could ask this question is anesthesia. So you go to somebody who is about to have surgery and you ask him, How much would you demand to be paid if I took out your appendix without anesthetizing you, without putting you to sleep? Nobody would agree. The sum would be infinite.

Pethokoukis, Economics, U.S. Economy

A Christian, free-market response to Pope Francis

From The Washington Post: “Pope Francis has released a sharply worded take on capitalism and the world’s treatment of its poor, criticizing “trickle-down” economic policies in no uncertain terms.”

Some on the left are interpreting the Pope’s statement as the pontiff taking sides against free marketeers. I will write more on that later, but I thought this from the great Christian libertarian economist Deirdre McCloskey provides a useful lens through which to view the Pope’s comments:

Friedrich Hayek, the modern master of what people in the USA call “libertarianism” and what others call “real liberals,” once wrote an essay entitled “Why I Am Not a Conservative.” He was not a conservative, nor am I or Robert Nozick or Tom Palmer or Donald Boudreaux or Ronald Hamowy or John Locke or Thomas Paine or (the Blessed) Adam Smith.

I am a Christian Liberal. That is, I believe on the one hand that in human affairs the best policy is to let people alone to exercise their creativity. Such creativity has made the modern world. We should take power away from the massive modern state, which so often follows the Other Golden Rule: Those who have the gold, rule. States are corrupted by the rich …

But on the other hand as a Christian I also believe that as a spiritual affair we should love God and love God’s creatures, that is, our neighbors as ourselves. (It is Jewish and Muslim law, too: Rabbi Hillel was asked to summarize the law and the prophets while standing one leg. His reply was: to love God , the commandments 1-4, and our neighbors, 5-10.) In consequence, unlike fatherly and unChristian liberals, I believe in helping the poor.

At a meeting libertarians/liberals last year in the Bahamas I expressed to someone what I thought was an axiom, “But of course we all want to help the poor.” He instantly retorted, “No: only if they help me.” It took my breath away. I want to help the poor, period, not only as part of an exchange … And my liberal part adds to my Christian duty: Help the poor really, not by making them unemployable by raising the minimum wage, or uneducated by forcing them into public schools, or violent and victimized by outlawing recreational drugs.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

Pethokoukis, Economics, U.S. Economy

Obama’s bullet train dream just derailed in California

Image Credit: Grist

Image Credit: Grist

Not a good month for the progressive policy agenda. In addition to Obamacare’s failed rollout, bad news from California about its high-speed rail plan. The San Jose Mercury News:

In rulings that threaten the future of California’s bullet train, a Sacramento judge on Monday ordered the state to draft a new budget for the multibillion dollar project and prove there’s enough money to finish the job before it is started.

Superior Court Judge Michael Kenny found the state’s High-Speed Rail Authority failed to follow voter-approved requirements designed to prevent reckless spending on the $68 billion project. Those safeguards are a key piece of the ballot measure voters approved in 2008 allowing the state to sell $10 billion in rail bonds to help build the nation’s first high-speed rail line, from San Francisco to Los Angeles.

And from Reuters:

Jon Coupal of the Howard Jarvis Taxpayers Association, an opponent of the project, said Kenny’s decisions mark a major setback for the California High-Speed Rail Authority.

“It’s a victory for common sense,” Coupal told Reuters. “I’m not sure how they salvage this.”

Critics of California’s high-speed rail effort say money will run dry before its network can be completed and that it is uncertain federal and private funds will be available for it over the long haul.

A USC Dornsife/Los Angeles Times Poll in September found seven out of 10 California voters want another vote on whether the high-speed rail project should continue and 52 percent say it should be stopped, compared with 43 percent who want it to move forward.

I don’t think that graphic at the top of this post is happening. The economics have always been dodgy, and the whole idea is likely to be technologically overtaken by autonomous vehicles. As The Washington Post put it recently: “High-speed rail was once a central part of Obama’s vision for government — one in which the nation’s infrastructure, schools and health-care systems would be modernized to meet the challenges of globalization and expand the middle class.” But bullet trains are retro tech splashed with liberal nostalgia for the 1950s and 1960s.

Transportation expert David Levinson, who blogs at Transportationist, had a great analysis of California’s plan a few years ago when it was only expected to cost half as much. A few excerpts:

1. The proposed California High Speed Rail line would be more expensive than every other active HSR proposal in the country put together. While subsidized by everyone who pays the regressive sales tax, its users would have a higher than average income, so it is a subsidy from the poor to the rich. It would cost about $600-$1000 person or $2000-$3000 per California household before a single trip is made. This money could support about 20,000 teachers or police perpetually. For every $1 spent by the passenger, it would entail $4 in public subsidy, twice the annual expenditure of the State Transportation Improvement Program/

2. HSR is slower than air travel in the main Bay Area to Los Angeles market. While proponents claim fewer delays at train stations than airports, that assumes lessened security precautions. Rail systems are at least as vulnerable to terrorism as air systems.

3. The HSR system will take less than one lane of traffic off the major North-South highways. Airports will soon have extra capacity as they increase operations in bad weather with instrumented flight controls.

4. Other modes are steadily getting cleaner, for instance fuel cell powered vehicles will emit only water and carbon dioxide. Any benefits from HSR depend on unproven forecasts. The energy for HSR must come from somewhere, if electric than probably coal or nuclear, both of which have some problems.

5.  What is the best use of $20,000,000,000 to $30,000,000,000 ? For that amount of money it would be very easy to provide improvements to air travel into the central valley, along with many other things. HSR is the least cost effective way to provide transportation services between the Valley and the coastal cities.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

Pethokoukis, Economics, U.S. Economy

How to stop the robots from taking all our jobs: A Q&A with Noah Smith

Image Credit: shutterstock

Image Credit: shutterstock

What if smart machines do take all our jobs — or at least a lot of them and depress wages? What can policymakers do to make sure that as many Americans as possible (a) still work and have an opportunity for earned success, and (b) get more of their income from owning capital as opposed to selling their devalued labor? Those are two of several topics discussed in the latest Ricochet Money & Politics podcast. My guest was Noah Smith, an assistant professor of finance at The State University of New York at Stony Brook. Smith blogs at Noahpinion and writes occasionally writes for The Atlantic. Here are some edited highlights of our chat:

I recently interviewed Tyler Cowen, and we talked about his new book Average is Over, a book where he addresses how automation is affecting and will continue to affect the US labor market. Now sort of the killer stat in his book is that he thinks about 15% of workers, the tech savvy ones, will do great in the future, but there will be stagnant wages for everybody else. And of course some people say we’re already seeing this effect in job polarization where there’s a lot of demand for high-skill jobs and low-skill jobs, with the middle sort of a bit maybe being off-shored either overseas or to “Robotland.”  I want to read something you wrote for The Atlantic which I think relates to that:

For most of modern history, two thirds of the income of most rich nations has gone to pay salaries and wages of people who work, while one third has gone to pay dividends, capital gains, interest, and rent to people who own capital. This two thirds-one third division was so stable that people began to think that it would last forever, but in the past ten years something has changed. Labor’s share of income has steadily declined, falling by several points since 2000 and now sits around 60% or lower.

So why is this happening, and what do you see as sort of the longer term impact?

Well so everybody’s talking about this rise of the robots, skill-based inequality. But I actually think that this is not as big a story as people are claiming, at least in the past decade because one of my mentors from Michigan, Mike Elsby, has written a recent paper that basically shows that a lot of it was just because of the end of the Cold War. Half the world’s labor supply was locked up behind the Iron Curtain, with not much capital, or with a bunch of wasted capital, and so once, you know, China and India and other countries basically opened up their labor markets, we had this giant dump of labor onto the global economy and of course that is going to drive down labor’s share and is going to drive up capital’s share of income, at least temporarily. I’m not saying that this is all of the story, but I think this is a lot more of the story than people realize. There’s this giant labor dump from China and India and other countries. But going forward I think it’s something we’ll have to worry about more.

read more >


The most important economic chart in US politics … is kind of misleading


Some version of the above chart is familiar to anyone who’s read a news story about income inequality. It apparently shows the pre-tax income growth of the top 1% rocketing higher over the past 40 years, the 99% not so much. Powerful prima facie evidence for those promoting the “rich getting richer by taking all the money” explanation for middle-class income stagnation.

But there might be more to the story. Economist Russ Roberts points out that at the same time the growth rate in family income was flattening from 1973 through 1993, there was a big increase in (a) the divorce rate and (b) the number of households headed by women. This was especially true among poorer families. And Roberts contends this had a huge impact on data showing middle-class income stagnation: “That demographic change is going to slow the average measured rate of growth, especially when those families are disproportionately created out of married families that are poorer than the average to begin with.” And this:

So during a time when individual income is actually growing, a rise in the divorce rate, especially among families below the average income, is going to pull down the measured rate of growth. … This has nothing to do with having fewer children or spreading income over a smaller number of people. It’s a result of the divorce rate that leads to measured household income being a misleading representation of what is going on in the economy. … This is important because the measured gains in income of the bottom 99% shown here are roughly zero in the 1980′s, a decade of healthy economic growth. This leads people to conclude that the top 1% got all the gains during that decade. I think that is absurd. My claim is that much or all of this depressing claim is a misreading of the data caused by demographic changes.

Interestingly, Roberts ran this idea past the University of Chicago’s Bruce Meyer, a scholar who has done a lot of great work income and consumption inequality, during a 2011 EconTalk episode. Here is Meyer’s reply: “Well, the share of families headed by single mothers hasn’t gone up that much in the last 10 years. So what you’re describing could be true more historically.”

Indeed! Rising inequality as a historical artifact of the 1980s is very much in keeping with a variety of research suggesting inequality between the bottom fifth and the middle fifth has not grown since the Reagan years. That may also be true of inequality at the top. Using a more comprehensive after-tax, household-size adjusted income definition, one that includes yearly accrued capital gains, health benefits, and transfers among other things, “dramatically reduces the observed growth in income inequality across the distribution, but most especially the rise in top-end income since 1989,” according to researchers Philip Armour, Richard Burkhauser, and Jeff Larrimore. Their research, along with that of Meyer, also suggests average median incomes are up by 40% or so since the 1970s. ( Also interesting: highly regarded research from the Equality of Opportunity Project found “a high concentration of income in the top 1% was not highly correlated with mobility patterns.”)

The bottom line: income inequality will likely be a big issue in the next presidential election. Now would be a good time to start getting our facts straight about it and to further the analysis beyond a single chart.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

Pethokoukis, Economics, U.S. Economy

When unemployment insurance expires, Americans aren’t going on disability

Credit: Richmond Fed

Credit: Richmond Fed

Another study suggesting that Social Security disability benefits are not masking America’s true unemployment rate in the aftermath of the Great Recession: “Unemployment Insurance and Disability Insurance in the Great Recession” by Andreas Mueller, Jesse Rothstein, and Till M. von Wachter.

Disability insurance (DI) applications and awards are countercyclical. One potential explanation is that unemployed individuals who exhaust their unemployment Insurance (UI) benefits use DI as a form of extended benefits.

We exploit the haphazard pattern of UI benefit extensions in the Great Recession to identify the effect of UI exhaustion on DI application, using both aggregate data at the state-month and state-week levels and microdata on unemployed individuals in the Current Population Survey. We find no indication that expiration of UI benefits causes DI applications. Our estimates are sufficiently precise to rule out effects of meaningful magnitude.

A recent study from the University of California, Berkeley, also found no correlation between expiring jobless benefits and rising disability claims. As the WSJ summarizes:

When the unemployment rate started rising in 2008 and 2009, the government extended unemployment benefits, leading to a drop in the number of people exhausting their payments. Yet the number of people filing for disability kept on rising. In more recent years, the government has cut back unemployment benefits, leading to an increase in expirations, but the number of disability applications has remained flat or even slowed.

Both studies support analysis by Goldman Sachs that notes the rise in SSDI beneficiaries has only modestly outstripped the Social Security Administration’s pre-recession forecasts. Goldman: “Most of the growth in SSDI beneficiaries seems to be due to a larger and older population.” Combined, the two studies suggest SSDI is not turning the US into 1980s Europe, where persistently high unemployment was blamed on easy availability of long-term jobless benefits.”

But the long-term rise in disability is a problem. Once you go on disability, you are unlikely to recenter the workforce.  And the rise in the population on disability has been enabled by government. According to a paper by David Autor and Mark Duggan, the increase is mostly due to “congressional reforms to disability screening in 1984 that enabled workers with low mortality disorders such as back pain, arthritis and mental illness to more readily qualify for benefits … Notably, the aging of the baby boom generation has contributed little to the growth of SSDI to date.”

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.