Economics, Health Care, Pethokoukis

Can the US private sector outsmart Obamacare?

Image Credit: Shutterstock

Image Credit: Shutterstock

Two probabilities: Obamacare isn’t suddenly going away and it isn’t going to fix US healthcare. If America is going to have a more medically effective, financially sustainable healthcare system in the future, it will require plenty of disruptive innovation by the private sector. Now that’s not just some overused business conference buzz phrase. “Disruptive innovation,” coined by Harvard Business School’s Clayton Christensen, is how new competitors steadily move upmarket and supplant established players by deploying some new technique or technology to make goods and services cheaper, simpler, and easier to access.

For instance: the first PCs were less capable than mainframe computers, but they were good enough and a lot cheaper for consumers and small business, the low-end of the market. Then as the technology improved, PCs moved upmarket and grabbed market share from Big Iron.

In healthcare, disruptive technologies allow complex, expensive procedures and treatments for well-understood medical problems to be done in places other than hospitals by less credentialed and less expensive doctors, nurses and technicians. This could mean, for instance, nurses sometimes substituting for anesthesiologists or using telemedicine so photos of skin condition could be sent to a physician.

So does the Affordable Care Act make disruptive innovation harder or easier?

Well, some of both, according to Seize the ACA: The Innovator’s Guide to the Affordable Care Act by Ben Wanamaker and Devin Bean of the Clayton Christensen Institute. On the plus side, the individual mandate will likely create the need for new delivery models at the low end of the market such as retail clinics. And the employer mandate creates incentives to split true insurance from routine reimbursement by providing on-site clinics or similar services to cover primary care and contracting directly with healthcare providers for catastrophic care. On the negative side, the essential health benefits provision establishes a floor at the low end of the market that creates a barrier to entry for new and disruptive providers. Same goes for the insurance exchanges themselves, which mandate health plan actuarial values and force providers to offer plans at Silver and Gold levels thus making new providers compete directly against incumbents.

Wanamaker and Bean:

In an effort to disrupt the defunct system, we recommend that innovators focus their efforts on areas where the legislation creates opportunities for disruptive innovation, specifically the Individual and Employer Mandates, ACOs, Wellness Programs, and the CMS Innovation Center.

While these provisions are far from silver bullets, innovations positioned with the right business models and value networks will yield exactly what legislators were hoping to create: more affordable and accessible quality health care.

In contrast, where provisions of the ACA discourage disruptive innovation—namely, Insurance Exchanges, Essential Health Benefits, Cost-Sharing Requirements, Medical Loss Ratio, and Medicaid Expansion—we appeal to policymakers to focus their efforts on making the legislation more innovation-friendly.

Quality health care will not become affordable and accessible on its own; we need to be proactive in creating room for the innovations that will transform the current state of the industry.

This outline for innovators also provides a deregulation road map for legislators, such as letting nurses do more of what doctors do: diagnosing and treating patients, as well as prescribing medications — all without a doctor’s involvement. And exchanges are ripe for deregulation, especially the essential benefits and medical loss ratio requirements. The goal is to create space for innovation and new players to gain a foothold and expand against the desires of incumbent players. But the ACA is all about Big Government and Big Medicine coming together — hardly a promising situation for upstart companies and new competitors. Once Republicans tire of delay and defund, they can start on deregulate.

Credit: Clayton Christensen Institute

Credit: Clayton Christensen Institute


Does more time in the classroom boost student performance?

Image Credit: Shutterstock

Image Credit: Shutterstock

It does, but not if the teacher stinks. The classroom environment is important. Instruction Time, Classroom Quality, and Academic Achievement by Steven Rivkin and JeffreySchiman

Instructional time has become an important element in school reform discussions, as many advocate for increases in time devoted to mathematics and reading instruction. A shortage of compelling empirical evidence has hindered the decision-making process, and a primary goal of this paper is to build on the contributions of recent work and provide additional information.

The analysis uses panel data methods made possible by the richness of the PISA data, and the fixed effects models accounted for student and school heterogeneity including differences by subject in some specifications.

The empirical analysis provides strong evidence in favor of the notion that additional time raises achievement using a series of specifications and measures of instructional time. Given the character of the deficiencies of the two fixed effects models, the results suggest that the effect is positive and modest in magnitude on average.

Although instructional time is found to exhibit diminishing returns, the rate of decrease appears to be quite gradual. Perhaps most important, the benefit of additional instructional time appears to vary with the quality of the classroom environment. The results produced by both specifications show that schools with low quality classroom environments likely realize little or no benefit from additional instruction time.


Economics, International economy, Pethokoukis

Is population growth really an existential threat?

Credit: James Cridland (CC BY 2.0)

Credit: James Cridland (CC BY 2.0)

Hannah Gais, an editor at the Foreign Policy Association, is one of those people very concerned about too many people. For her, it’s right up there with climate change as an existential threat to humanity, Gaia, the whole shebang. As she writes for U.S. News & World Report: “If there’s one thing we can agree on, it’s that there are certainly a lot of us. But how much of a growing population can the earth really support – comfortably and without destroying it, that is?”

But Gais isn’t really asking a question here. She is searching for affirmation of her existing belief that, yuppers, there’s too darn many of us. And that affirmation arrives in the form of Alan Weisman, author of the The World Without Us, a thought-experiment that examines what would happen to the planet if all 7.1 billion of us disappeared. (Spoiler: a return to Eden.) Gais:

The United Nations estimates that the world population at the end of the century will be around 11 billion, and many fear that the planet’s natural resources are insufficient to accommodate such growth. Weisman is one of them. He rejects the thesis, advanced by “technological optimists,” that human ingenuity and technological development will fix the problems overpopulation presents. Ingenuity and development require resources, he says, and resources are finite.

Two problems:

1. It’s not all clear global population will end up anywhere near those levels. For instance, demographer Sanjeev Sanyal of Deutsche Bank thinks the UN is way off. His calculations find the world’s overall fertility rate falling to the replacement rate in 2025, although global population will continue to expand thanks in part to rising longevity, for another few decades. Then comes the Big Shrink. Sanyal:

We forecast that world population will peak around 2055 at  8.7 billion and will then decline to 8.0 billion by 2100. In other words, our forecasts  suggest that world population will peak at least half a century sooner than the UN expects and that by 2100, and that level will be 2.8 billion below the UN’s  prediction. This is obviously a radically different view of the world.

2. The Weisman Declaration of Scarcity –  “Ingenuity and development require resources, he says, and resources are finite” — is wrong-headed. For starters, that’s just factually wrong given the vast potential of asteroid mining. But that aside, ideas and innovation turn scarcity into prosperity, the finite into the seemingly infinite. Economist Paul Romer:

Imagine you start with about 100 elements in the periodic table and you ask: How many valuable things can we make by mixing together different elements from that table … Well, starting at two a time. Two at a time would be 100 times 99, so that’s already a big, relatively big number. But then suppose we have three things we can pick, so then there’s 100 you could pick first, then 99, then 98, and then we consider mixtures of 4 and 5…when you start to consider all the possible mixtures, the number of things we could make out of the periodic table is bigger than the total number of seconds since the Big Bang created the universe. So we know there’s things out of the periodic table that no human has ever investigated, has ever even tried. And scientists keep finding new things out of those mixtures that turn out to be very surprising. … there are still things out there to discovered like that, out of just mixing things from the periodic table, we’ll never run out of- between now and the time 5 or 10 billion years from now when the sun explodes and incinerates the whole solar system, we’ll never run out of important new things to discover.

3. Rather than be terrified of all those babies yet to come, I’m excited by all those new minds coming on line. It should be our goal to make sure they’re born into a world where they can meet their human potential, a world of economic freedom and prosperity that encourages and rewards their new ideas. Ramez Naam:

Innovation is the ultimate source of our wealth. New ideas have multiplied the resources we have access to; have reduced the amount of land, energy, and raw materials we need to accomplish any task; have created substitutes for every resource we’ve been in danger of exhausting in the last 500 years; have grown our ability to recycle waste into things of value; and have, in recent years, begun to decouple our economic growth from our levels of consumption and environmental change.

4. One more thing: is Gais more worried about a) some Soylent Green future for humanity or b) humanity as some disease threatening the Mother Earth? Hmm …

Economics, Monetary Policy, Pethokoukis, U.S. Economy

An open letter to George Will on the Federal Reserve and monetary policy

Image Credit: jaci starkey (Flickr) CC

Image Credit: jaci starkey (Flickr) CC

Mr. Will:

I don’t believe we’ve ever met, though for several years our paths frequently crossed in Georgetown as we both walked to lunch. Of course I’m a long–time reader of your newspaper columns, gaining valuable insight from and agreeing with the vast, vast majority. Your writings on the Federal Reserve and monetary policy, however, land in that misguided minority. Take your most recent piece on the nomination process for new Fed chairman and the central bank’s continued bond buying program — a failed effort, in your view. The final paragraph provides a good summary:

The Fed has become the model of applied progressivism, under which power flows to clever regulators who operate independent of political control. The Fed is, however, a creation of Congress, which may not forever refrain from putting a bridle and snaffle on a Fed that increasingly allocates credit, wealth and opportunity.

A few friendly observations:

1. That “bridle and snaffle” you wish Congress to apply would be, I assume, a single mandate focused solely on price stability to replace the current dual mandate that demands the Fed also pursue maximum employment. In other words, you wish the Fed was more like the European Central Bank. But the ECB’s policy has been a disaster in recent years. Unlike the Bernanke Fed, it has failed to offset the eurozone’s fiscal austerity with monetary easing. The US economy has been slowly growing since summer 2009 and adding jobs despite the most intense fiscal consolidation since the Korean War demobilization. The eurozone, on the other hand, is only now emerging from a double-dip recession as unemployment remains at the worst levels since the start of the 2007 global recession.

2. The Fed isn’t allocating “credit, wealth, and opportunity,” it’s merely trying to accommodate excess demand for liquid assets, bonds, and cash in the aftermath of a series of economic shocks: the recession, financial meltdown, and euro-zone crisis. When a central bank fails to do this essential job of meeting money demand, as happened in 2008 globally, you get depressions or at least great recessions. If the Fed was creating a “sugar high,” inflation would be surging rather than quiescent. And equating low interest rates with easy money is a mistake. As Milton Friedman put it: “After the U.S. experience during the Great Depression, and after inflation and rising interest rates in the 1970s and disinflation and falling interest rates in the 1980s, I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead.”

3. Speaking of Uncle Miltie, you seem completely unaware of the market monetarist school which has updated Friedman’s monetarist approach to monetary policy. Market monetarists — and they exist on the left and right — advocate the Fed target the path of nominal GDP and make up for any misses. While the Fed cannot much affect the US economy’s potential growth rate, it can offset severe demand shocks and stabilize total spending in the economy with this rule-based approach to monetary policy. Economist Scott Sumner offers an excellent summary in this National Affairs essay, “Re-Targeting the Fed.” I would also recommend ringing up Richmond Fed economist Robert Hetzel. As Hetzel persuasively argues in The Great Recession: Market Failure or Policy Failure, it was the Fed’s tight monetary policy miscues after the 2008 downturn began that turned a run-of-the-mill recession into a once-in-a century disaster.

4. I guess my basic point is that the center-right approach to effective, rules-based monetary policy isn’t just limited to the supposedly prewar Austrian (gold standard, business cycle) critique that you lay out in the column. (Friedman once said: “I think the Austrian business-cycle theory has done the world a great deal of harm.”)

As I wrote recently in National Review: “This is a critical period for economic thinking on the right. It’s reminiscent of the late 1970s when conservatives accepted economic reality and abandoned root-canal fiscal policy — recall that Barry Goldwater voted against JFK’s supply-side tax cuts — for Reagan’s pro-growth economics. Now it’s time to reject a resurgence of root-canal monetary policy, too.”


James Pethokoukis


Of course Americans are better today than 30 years ago

Image Credit: Shutterstock

Image Credit: Shutterstock

Measuring income inequality is tricky business because “income” isn’t just one thing. Economist Thomas Piketty and Emmanuel Saez use pre-tax, pre-transfer income data from IRS tax records of filers and include realized capital gains. They conclude the share of income going to the top 1% has doubled over the past three decades as middle-incomes stagnated. Researcher Richard Burkhauser looks at households’ post-tax, post-transfer income as well as capital gains and finds a near 40% income boost since 1979. What’s more, factoring in accrued gains on housing and private business ownership “dramatically reduces the observed growth in income inequality across the distribution, but most especially the rise in top-end income since 1989.”

Another option is looking at consumption inequality. Not only does that take into account the tax and transfer system, but it allows for consumption smoothing over the course of a business cycle and a lifetime. A retired senior has low income but can tap his lifetime of savings. Likewise, a student with low income can borrow to pay for school and expenses in hopes of getting a good job later. What does an analysis of consumption data show about US inequality?

AEI’s Aparna Mathur has a longish essay on the subject that is worth reading, but let me pull out one bit from her analysis, along with that of colleague Kevin Hassett. Looking at the Residential Energy Consumption Survey, which contains questions on household use of appliances such as microwaves, dishwashers, computers, and printers. Mathur concludes:

What we find is that the access of low-income Americans – those earning less than $20,000 in real 2009 dollars – to these devices that are part of the “good life” has increased. The percentage of low-income households with a computer rose to 47.7% from 19.8% in 2001. The percentage of low-income homes with six or more rooms (excluding bathrooms) rose to 30% from 21.9% over the same period.  Similar increases can be documented for appliances like air-conditioners, dishwashers, microwaves, cell phones and other household items. In general, we find that people at all income levels now have access to many more material possessions than they did in the 1980s. Moreover, there has been a narrowing of the gap between high and low income classes in terms of ownership of these items. It is hard to argue against the improvement in the standard of living that has accompanied these trends.
Hence, the standard narrative that rising income inequality has somehow hurt the middle and lower income classes is not supported by data.

Economics, Monetary Policy, Pethokoukis

5 market monetarism-QE questions in 5 days (Part 5): ‘Isn’t this all just a form of central planning?’

Photo Credit:

Photo Credit:

Most folks who identify as market monetarists have been in favor of the Fed’s bond-buying, or “quantitative easing,” program. They don’t think it’s been executed perfectly, however. If the Fed’s actions had been accompanied by a stated intention to target the level of nominal GDP, there’s a strong case that QE could have been far smaller yet far more effective. Still, as I write in my new National Review column, QE has likely helped the economy and thus been worth doing.

Every day this week, I will present answers to some common QE criticisms from a market monetarist perspective. 

Question #1 on Monday: “QE is doing nothing since banks are just sitting on the money. Look at the huge increase in excess reserves! What’s the point? How is this boosting growth, exactly?”

Question #2 on Tuesday: “Maybe the Fed is having a positive economic impact, but isn’t it just a sugar high, papering over or propping up a bad economy with easy money?”

Question #3 on Wednesday: “Why hasn’t QE been inflationary?”

Question #4 on Thursday: “Does it matter if the Fed dials back its bond purchases if its balance sheet remains monstrously huge?

And here is the final question:

Isn’t this all just another form of central planning?

Scott Sumner, economist at Bentley University and blogger at The Money Illusion:

Right now resources are being misallocated because low nominal GDP combined with sticky wages lead to mass unemployment.  A good monetary policy should lead to a situation where the central bank appears invisible, and lets the market allocate resources.  To do that we need faster growth in nominal spending.  Fiscal stimulus is better described as central planning, as monetary policy merely affects nominal GDP, and lets the market decide how that nominal spending will be allocated between the various sectors.  You aren’t centrally planning the economy, rather you are planning the one thing you already control, money.  Given the Fed runs the monetary system, it’s better they do so in a way that doesn’t damage the economy, than a way that it does.  Consider this hypothetical: Suppose we currently had hyperinflation.  Would a Austrian economist oppose tighter money on the grounds it was “central planning?”  Why not?

Michael Darda, chief economist at MKM Partners:

Unless we are going to get rid of the Fed, which won’t and probably should not happen, having the Fed conduct policy in a way that provides nominal stability should be the goal. Scott Sumner’s proposal for a market-based NGDP level target is one way to do this. In this way the market guides policy and credibility prevents sustained nominal (monetary) shocks.

David Beckworth, economist at Western Kentucky University and blogger at Macro and Other Market Musings:

QE at its core is an imperfect attempt to respond to monetary disequilibrium. It is flawed because of its ad-hoc, make-it-up-as-we-go-along approach and until recently, not being tied to any explicit target.  So this erratic policy implementation is problematic and does place too much focus and thus power on what the Fed does. I wouldn’t call this central planning, but I would call bad policy making. Ideally, the Fed would go to a NGDP level target that would make its actions more rule-like and predictable.

Josh Hendrickson, economist at the University of Mississippi and blogger at The Everyday Economist:

I actually agree that Federal Reserve policy suffers from the same types information problems as central planning.  If one thinks of the Fed as trying to set the market interest rate equal to the natural rate of interest as David Beckworth and Mike Woodford prefer to think about it, then it is easy to see how difficult it is to solve this information problem.  HOWEVER, we have a central bank.  Thus, the question is what a central bank should do given that one exists.  I favor nominal income targeting because (1) I think that it minimizes the information and knowledge that central bankers must have to do their job and (2) because a nominal income target requires the money supply to adjust roughly in the same way as it would under a free banking system.  In other words, a nominal income target is as close as we can get a central bank to replicating what would happen if we had a free market for bank notes.

To argue that the Fed shouldn’t conduct QE because centrally planning is hard is an argument against a central bank, it is not an argument against QE.

Economics, Energy and the Environment, Pethokoukis

The new UN climate change report is a call to do what, exactly?

Credit: UN IPCC

Credit: UN IPCC

The 15-year pause in global warming did little to cool the fervor of the UN’s climate change group. The new report from the Intergovernmental Panel on Climate Change remains confident, very confident, extremely confident, or take-it-to-the-bank confident of a great many things:

Warming of the climate system is unequivocal. … Human influence on the climate system is clear. … Global mean sea level will continue to rise, but at a faster rate than we have experienced over the past 40 years … Global surface temperature change for the end of the 21st century is projected to be likely to  exceed 1.5°C relative to 1850 to 1900 in all but the lowest scenario considered.

And the pause? Waved it off, more or less: “Due to natural variability, trends based on short records are very sensitive to the beginning and end dates and do not in general reflect long-term climate trends.” Nothing to see here, world. Get back in your Prius and move along.

Now the IPCC’s 36-page summary for policymakers mentions the words “model” or “modelling” 108 times. Which of course should raise questions about the accuracy and limitations of these models, particularly in light of the unexpected 15-year pause. The Economist called that surprise mismatch between rising greenhouse-gas emissions and flattish temperatures “among the biggest puzzles in climate science just now.”

So what do the models really tell us about what to do next? That’s just the question examined in a July paper by Robert Pindyck, the Bank of Tokyo-Mitsubishi professor of economics and finance at MIT’s Sloan School of Management. A bit from Climate Change Policy: What Do the Models Tell Us

Very little. … Integrated assessment models models [for climate change response] have crucial flaws that make them close to useless as tools for policy analysis.  … As I have explained, the physical mechanisms that determine climate sensitivity involve crucial feedback loops, and the parameter values that determine the strength of those feedback loops are largely unknown.

When it comes to the impact of climate change, we know even less. IAM damage functions are completely made up, with no theoretical or empirical foundation. They simply reflect common beliefs (which might be wrong) regarding the impact of 2◦C or 3◦C of warming, and can tell us nothing about what might happen if the temperature increases by 5◦C or more. And yet those damage functions are taken seriously when IAMs are used to analyze climate policy. Finally, IAMs tell us nothing about the likelihood and nature of catastrophic outcomes, but it is just such outcomes that matter most for climate change policy. Probably the best we can do at this point is come up with plausible estimates for probabilities and possible impacts of catastrophic outcomes. Doing otherwise is to delude ourselves.

None of this is to deny the Earth is warming or that human-generated carbon emissions play a big role or that some action is warranted. Pindyck himself disagrees with the idea that because we know so little nothing should be done about climate change until more data is gathered and research performed. “Quite the contrary. One can think of a GHG abatement policy as a form of insurance: society would be paying for a guarantee that a low-probability catastrophe will not occur (or is less likely).” Pindyck favors a modest carbon tax that would at least establish that there is broader social cost to carbon emissions. It could then be raised or lowered as more data become available.


Another insurance option, though one the IPCC doesn’t much like, would be large-scale research into geoengineering technologies such as solar radiation management. SRM would reduce the amount of solar energy absorbed by the Earth by reflecting a small amount back into space. A recent proposal presented at AEI highlighted  two SRM methods: pumping a fine aerosol spray (possibly of sulfur) into the stratosphere and injecting seawater into low-level marine clouds, whitening them. Researchers estimate that for an annual cost of approximately $20 billion to $32 billion, it might be possible to counter a doubling of CO2 emissions and avoid trillions of dollars in future economic harm.

Credit: UN IPCC

Credit: UN IPCC


Pethokoukis, Economics, Taxes and Spending

70% or bust: More evidence the left wants to repeal and replace the Reagan tax cuts


Just got an email from the left-liberal Economic Policy Institute promoting a new paper on “middle-out” economics. More on what exactly “middle-out” economics is in a moment (other than the basis of Elizabeth Warren’s 2016 presidential campaign). But here is one of EPI’s supposedly pro-middle class policy ideas:

While the highest-income households have claimed vastly disproportionate shares of total income growth, top income-tax rates have fallen substantially in recent decades, with the increase beginning January 1 of this year only slightly pushing back against this trend. If federal tax rates on the top 1 percent had remained at 1979 levels, this would have led (all else equal) to more than $150 billion in additional annual tax revenue in 2007. Besides raising revenue, higher tax rates would blunt the drive toward greater inequality.

Forget about the GOP desire to repeal and replace the 2010 Affordable Care Act, EPI economists Josh Bivens and Hilary Wething apparently would like to repeal and replace the 1981 Reagan tax cuts. For them, it’s still a live policy debate more than three decades on. In fact, it’s the new left-liberal consensus that top tax rates could go to the pre-Reagan 70% level or even higher with little negative economic impact. Welcome back, Jimmy Carter. This, by the way, is almost certainly not true.

Then again, this whole “middle-out” theory — basically an attempt to rebrand Democrats’s horrendous pre-Clinton economic policy — is sort of screwy. It de-emphasizes the supply-side determinants of economic growth in favor of consumer-driven stimulus. Tax the rich so the middle class can spend more, apparently. But as economist Casey Mulligan puts it: “Economists have been investigating the determinants of economic growth for decades, and conclude that investment is crucial for an economy to grow. High rates of investment in the present make possible future consumer spending.” Middle-out economics puts the cart before the horse, with the taxman sitting inside that cart. Middle-out is an intellectual muddle.

Economics, Monetary Policy, Pethokoukis

Why the next Fed chair will face a ‘Volcker moment’ on the US job market

Image Credit: HarvardEthics (Flickr) CC

Image Credit: HarvardEthics (Flickr) CC

Whether it’s Janet Yellen (almost certainly) or Donald Kohn (far less likely) or Timothy Geithner (in President Obama’s dreams), Ben Bernanke’s successor at the Federal Reserve will have to make a big call about the glacially healing American labor market. Has the central bank done close to all it can? Or is there actually room to do a whole lot more without risking an inflation surge or dangerous asset bubbles?

Minneapolis Fed president Narayana Kocherlakota argued Thursday it’s the latter in a Churchillian speech — well, for a talk on monetary policy — titled “A Time of Testing.” Kocherlakota said the next Fed boss faces a moment similar to that which confronted former chairman Paul Volcker when he took over in 1979. Many economists back then said high inflation was here to stay. There was little monetary policy could do about it. In an October speech that year titled “A Time for Testing,” Volcker rejected the perma-inflationista claims. He then followed through with action. He tightened monetary policy to push down inflation even as interest rates and unemployment soared. But Volcker broke the back of inflation and inflation expectations.

Today, as back then, some experts are saying the Fed is helpless to deal with a big economic problem. This time, however, the challenge is a persistently weak job market rather than stubbornly high inflation.



But Kocherlakota thinks that through clear communication and aggressive action, this battle is winnable. First, “the FOMC’s goal should be to return employment to its maximal level as rapidly as it can, while still keeping inflation close to, although possibly temporarily above, the target of 2 percent.”

Second, the FOMC has to act on that goal. Kocherlakota:

It must do whatever it takes to achieve its communicated goal.  … Doing whatever it takes in the next few years will mean something different. It will mean that the FOMC is willing to continue to use the unconventional monetary policy tools that it has employed in the past few years. Indeed, it will mean that the FOMC is willing to use any of its congressionally authorized tools to achieve the goal of higher employment, no matter how unconventional those tools might be. Moreover, doing whatever it takes will mean keeping a historically unusual amount of monetary stimulus in place—and possibly providing more stimulus—even as:

  • Interest rates remain near historic lows.
  • Economic growth rises above historical averages.
  • Per capita employment begins to rise appreciably.
  • Asset prices rise to unusually high levels, leading to concerns about “bubbles.”
  • The medium-term inflation outlook rises temporarily above 2 percent.

It may not be easy to stick to this path. But I anticipate that the benefits of doing so, in terms of employment gains, will be significant.

I would prefer to clearly and transparently target the level of total spending or output, but Kocherlakota is close enough for government work. He doesn’t want to let bygones be bygones, he wants to play some catchup.  And what a fascinating intellectual journey for this central banker, from worrying about structural unemployment to making a foreful case that it’s a weak economy slowing job growth. Whoever the next Fed chairman is, Kockerlakota is a pretty good candidate for second in command.

Pethokoukis, Economics, Taxes and Spending, U.S. Economy

10 more things House GOPers should demand before raising the debt ceiling


House Republicans have a few minor, hardly-worth-mentioning demands in return for graciously agreeing to waive or raise the US debt ceiling: one-year Obamacare delay, Paul Ryan-esque tax reform, fast-track tax reform authority, energy reform (Keystone Pipeline, coal ash regulations, offshore drilling, energy production on federal lands, EPA carbon regulations), regulatory reform (REINS Act, regulatory process reform, consent decree reform, blocking Net Neutrality), federal employee retirement reform, ending the Dodd Frank bailout fund, transitioning CFPB funding to appropriations, child tax credit reform to prevent fraud, repealing the Social Services Block grant, means testing Medicare, repealing a Medicaid provider tax gimmick, tort reform, altering Disproportion Share hospitals, repealing the Public Health trust fund,

Is that all? Seems incomplete. How about a few more: 1) Herman Cain’s 9-9-9 tax plan, 2) personal retirement accounts, 3) renaming Dulles airport after Calvin Coolidge, 4) Brilliant Pebbles missile defense (or x-ray pulse laser, whatevs), 5) nominating Ron Paul for Fed chair, 6) national apology from Jimmy Carter, 7) details on how Hillary really made $100,000 from cattle trading, 8) Harry Reid to return Romney’s tax returns, 9) Obama to visit Bakken oil fields in North Dakota, and 10) new episodes of 24.  (Wait, that last one is already happening. Change that to new episodes of Firefly.)

OK, the point here is that Obamacrats and House Republicans are far apart. “Make no mistake — this will become a genuine crisis, far more ominous than the threat of a government shut-down,” says Greg Valliere of Potomac Research in his morning note. And the latest from Chris Krueger of Guggenheim Washington Research Group, who sees a 40% chance of technical default:

This list only underscores how difficult the debt ceiling raise will be to engineer. What is Obama offering? Nothing. Full stop. Ultimately, something symbolic will have to be given from the White House for a raise (which will happen) but with 21 days to go we base that on nothing more than blind faith because there is no evidence to suggest that this group of politicians can get out of the box they have created.

Someone has to blink. Magic bullet solutions from Obama look dubious. Either a ) invoking the “constitutional option” and unilaterally raising the debt ceiling, or b) instructing the US Treasury to mint a handful of trillion dollar platinum coins to be deposited at the Fed would, says Krueger, “likely trigger a wave of lawsuits similar to the Constitutional Option and create two tranches of treasuries. We do not see the platinum coin option as a viable solution.”

The US won’t stiff creditors or even delay bond payments to create a technical default. But it will have to cut spending by 40% and not cut checks to people who are owed check. So the US government will not be meetings its financial obligations as the economy begins to tank and financial markets react. October 17, the debt ceiling “X date” according to Treasury Secretary Jack Lew, will be here before Washington knows it.