Most of the 16 options in this report would either decrease federal spending on health programs or increase revenues (or equivalently, reduce tax expenditures) as a result of changes in tax provisions related to health care. Some options would result in a reallocation of health care spending—from the federal government to businesses, households, or state governments, for example—and most would give parties other than the federal government stronger incentives to control costs while exposing them to more financial risk.
The US economy grew at an above-trend 3.6% pace in the third quarter, an upward revision from the earlier 2.8% estimate and the strongest showing since the first quarter of 2012.
Still, the number left many Wall Street economist cold because the favorable recalculation was due to a big upward adjustment in inventories.
This sizable accumulation of inventories in 3Q—which was even larger than our anticipated upward revision—suggests that inventories should be a significant drag on GDP growth in the fourth quarter, adding some downside risk to our current forecast for 4Q (+1.5% saar).
We have lowered our Q4 13 real GDP growth forecast to 1.5% saar from 2.0%. Real GDP increased 3.6% in Q3 13, above our and consensus expectations, but that surprise was fueled in large part by inventory growth. Real inventories rose $116.5bn in Q3, contributing 1.7pp to real GDP growth, and we view that pace as too strong to be sustainable and look for notably slower inventory and real GDP growth in Q4.
Interesting to me was the big difference between gross domestic product and its flipside, gross domestic income, which rose just 1.4%. The Philly Fed now releases a blending of the two measure that it feels is a better, less volatile gauge on economic growth. The GDPplus measure out today was up 1.96% vs. 2.87% in 2Q, 2.71% in 1Q, and 3.37% in 4Q 2012. So over the past year, GDPplus has risen about 2.7%, a bit better than the overall postrecession GDPplus averge of 2.5%. (Recall, by the way, that in August of 2009, the White House predicted that GDP would rise 4.3% in 2011, followed by 4.3% growth in 2012 and 2013, too. And 2014? Another year of 4.0% growth.) Many Wall Streeters are forecasting a pick up next year.
In a decade or so, according to the Association of American Medical Colleges, the US may find itself needing 130,000 more doctors than medical schools will be producing. Higher demand will come from an aging society and millions more Americans with health insurance thanks to the Affordable Care Act. So are we moving from a health insurance crisis to a healthcare access crisis?
All else equal, perhaps. But all else is rarely equal or static in a dynamic economy like America’s. AEI’s Scott Gottlieb and Ezekiel Emanuel argue that “new technologies are turning the treatment of many medical conditions into less resource-intensive endeavors, requiring fewer doctors to manage each episode of illness.” Also important is having non-physician medical personnel do more. But both innovative solutions could be stymied by government:
The opportunity exists to deliver more services and care with fewer physicians, but it’s not a foregone conclusion. Policy changes will be necessary to reach the full potential of team care. That means expanding the scope of practice laws for nurse practitioners and pharmacists to allow them to provide comprehensive primary care; changing laws inhibiting telemedicine across state lines; and reforming medical malpractice laws that force providers to stick with inefficient practices simply to reduce liability risk. New payment models must reward investments in technologies that can save money in the long run. Most important, we need to change medical school curriculum to provide training in team care to take full advantage of the capabilities of nonphysicians in caring for patients.
As I have written before, I’m a big fan of The Innovator’s Prescription: A Disruptive Solution for Health Care by Clayton Christensen, Jerome Grossman, and Jason Hwang. And what Gottlieb and Emanuel write matches up nicely with a WSJ op-ed from earlier this year where Christensen focuses on two ways to bring disruptive innovation to US healthcare.
– Going beyond current licensing, consider changing many anticompetitive regulations and licensure statutes that practitioners have used to protect their guilds. An example can be found in states like California that have revised statutes to enable highly trained nurses to substitute for anesthesiologists to administer anesthesia for some types of procedures.
– Make fuller use of technology to enable more scalable and customized ways to manage patient populations. These include home care with patient self-monitoring of blood pressure and other indexes, and far more widespread use of “telehealth,” where, for example, photos of a skin condition could be uploaded to a physician. Some leading U.S. hospitals have created such outreach tools that let them deliver care to Europe. Yet they can’t offer this same benefit in adjacent states because of U.S. regulation.
Extraordinary claims, it’s been said, require extraordinary evidence. And President Obama made quite an assertion in a speech Thursday at the Center for American Progress: “The combined trends of increased inequality and decreasing mobility pose a fundamental threat to the American dream, our way of life and what we stand for around the globe.”
But Obama wasn’t just giving a warning, he was also teaching a partisan, progressive, left-wing history lesson. As he sees it, these toxic trends have been slowly poisoning the US economy and the American Dream for decades. The pro-market or “neoliberal” turn in the nation’s economic policy — tax cuts, deregulation — that started in the late 1970s was, according the president, a big mistake that made rich people even richer and little else.
But much of Obama’s argument is either dubious, deceptive, or demonstrably false. Let’s start with his “fundamental threat” claim. Is Team Obama aware of a 2009 study by researchers Dan Andrews, Christopher Jencks and Andrew Leigh that finds “no systematic relationship between top income shares and economic growth” in advanced economies. Actually, more inequality is associated with higher GDP growth, according to the analysis.
Let’s move on. Obama:”Since 1979, when I graduated from high school, our productivity is up by more than 90 percent, but the income of the typical family has increased by less than 8 percent.”
Reality check: Obama grossly overstates the productivity-income gap, and the middle-class stagnation argument is a myth. According to the Congressional Budget Office, for the 60 percent of the population in the middle of the income scale (the 21st through 80th percentiles), the growth in average real after-tax household income — meaning after federal taxes have been deducted and government transfers including Social Security and unemployment insurance have been added – was just under 40% from 1979 through 2007, the end of the last business cycle. The CBO numbers sync well with those of Cornell University’s Richard Burkhauser who finds that mean income growth — also taking into a account a broader measure of income — for the middle 20% rose by 37% from 1979 through 2007. And research by the University of Chicago’s Bruce Meyer and Notre Dame’s James Sullivan find accounting properly for inflation shows median incomes have gone up by about 50% since 1980.
But there’s so much more. Obama claims that starting in the late 1970s, “businesses lobbied Washington to weaken unions and the value of the minimum wage. As the trickle-down ideology became more prominent, taxes were slashes for the wealthiest while investments in things that make us all richer, like schools and infrastructure, were allowed to wither.”
Really? Union membership as a share of total employed peaked in 1954 not the late 1970s, according to the Cleveland Fed. Most Americans in 2010 — not just the rich — paid far less in total taxes — federal, state and local — than they would have paid 30 years ago, according to an analysis by The New York Times. And a 2011 study by Marco Percoco, a professor at Bocconi University in Italy, shows US. public investment has tracked the OECD average since at least 1970, according to Bloomberg. And when a proper inflation adjustment is used, the current minimum of $7.25 is just a nickel below the average from 1960 to 1980.
But it’s not just inequality. Obama also claims “we’ve seen diminished levels of upward mobility in recent years.” Yet a survey of the economic literature by inequality researcher Scott Winship of the Manhattan Institute finds, “Most of the evidence on earnings and income mobility suggests only small changes over recent decades.”
Here’s the bottom line: America’s pro-market turn some three decades ago reversed what then seemed like unstoppable national decline. (Nations that didn’t make that choice, such as Japan and France, have not fared well.) Yes the rich got a lot richer, mostly due to technology and globalization. But the middle-class did pretty well, also. Pre-tax incomes at the bottom end suffered, but the safety net has helped a lot. Inequality has likely increased sharply at the very high end, but has been stable elsewhere along the income distribution spectrum. Mobility could be better, but the big problem is really upward mobility from the very bottom. And America remains the world’s innovation leader.
Obama’s revisionist history and one-sided, black-and-white economic analysis may please his dispirited base, but they won’t help America make the right decisions going going forward about how to boost growth and ensure those economic gains are as broadly shared as possible. Obama makes inequality and mobility just seem like convenient excuses to raise taxes and expand government. By placing those issues within a harshly partisan, left-liberal, progressive framework he makes it harder for right-of-center folks who worry about, say, the effect of automation on the US labor force, to engage in a much-needed policy debate.
Both BloombergBusinessweek (reporters Peter Coy and Susan Berfield) and the Financial Times (columnist Edward Luce) are out with pieces supportive of raising the minimum wage. While I understand the desire to give low-wage workers a raise, selecting the minimum wage as instrument of choice is a curious. While critics can be apocalyptic about the economic impact of raising the minimum wage, basic economics suggests doing so will make it more expensive for businesses to hire young and low-skill workers.
For instance, a 2013 literature review by David Neumark, J.M. Ian Salas, and William Wascher concludes “that the evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage.”
And a study in September from Texas A&M economists Jonathan Meer and Jeremy West finds while raising minimum wage “may not cause an immediate shock to employment, as is often feared,” it does discourage firms over the longer-term from hiring.
What’s more, a 2010 study “Will a $9.50 Federal Minimum Wage Really Help the Working Poor?” by researchers Joseph Sabia and Richard Burkhauser found that a federal minimum wage increase from $7.25 to $9.50 per hour — higher than the $9 that President Obama has proposed — would raise incomes of only 11% of workers who live in poor households. Even Coy and Berfield acknowledge some of the policy’s imperfections, writing that “a higher wage floor would undoubtedly price some marginal workers out of the market.”
These studies aren’t some secret. So why do so many smart people keep advocating for a higher minimum wage? The best answer I can come up with is that they think it is more politically likely than the better economic answer: wage subsidies. I recently chatted with economist Noah Smith on this very topic, as part of a discussion of what to do if automation seriously depresses wages in the future. Smith:
The whole reason to keep people in jobs in the first place, to keep people working would be that people feel valuable from working. But a better proposal … is actually wage subsidies, government wage matching, also called a negative income tax. We would be putting our thumb on the scales between humans and robots to keep humans in work that in a perfectly free market they wouldn’t be doing.
When a company offers you wage, the government matching would have already done behind the scenes. Someone comes and offers to pay me $20 an hour, the government is paying $12 of that. I would be making $8 an hour, but I would feel like a person who making $20 an hour. Unlike the Earned Income Tax Credit where you get a check from the government based on how much income you earned, I think people would feel a lot better in term of the framing of it if the government matched their wages instead.
That is why people really dislike handouts but really love the minimum wage even though it doesn’t make any sense economically. The minimum wage really distorts the economy more than handouts. … Actually you could get a really efficient wage subsidy if you had local governments subsidizing local wages with land value taxes and then you could tune it to the local cost of living. But now we are getting into the realm of policies so smart they will never actually be done.
Some less adventurous versions of what Smith proposes:
1.) Economist Edward Glaeser would alter the EITC by making it a clear and transparent wage subsidy to all workers making less than $9 an hour.
2.) AEI’s Michael Strain has advocated allowing firms to hire the long-term unemployed at less than the current minimum wage and supplementing their income with an EITC-like payment.
3.) Management consultant Oren Cass, a domestic policy adviser for the Romney presidential campaign, would use the payroll tax system to create a direct-to-worker wage subsidy. Cass: “The effect in many ways would mirror a substantial increase in the minimum wage. But whereas a price control would to tend to decrease the size of the labor force, a subsidy would tend to increase it.”
Of course, wage subsidies are an on-budget, transparent cost — which politicians hate — while the costs of the minimum wage are shifted onto business and hidden. But the costs exist just the same. The debate over how to help low-skill, low-wage workers needs to be a bit more policy forward and explore options that in the past may have seemed unlikely.
There are two GDP measures. One looks at spending, the other income. The former gets the most press — it’s actually pretty hard to find US gross domestic income numbers – but both have their fans. The two measures often disagree, sometimes by a large margin. As a new study notes:
… 2000 Q1 GDPE was 1.1% while GDPI was 8.1%, and the very next quarter GDPE was 7.5% while GDPI was 2.2%. Clearly, since they are supposed to measure the same underlying true GDP, one of them was badly wrong each quarter.
Many other advanced economies will blend the two measures to come up with their official GDP number. In the study just referenced, a group of economists, including one from the Fed, created their own blended GDP number, GDPplus, which is handled by the Philly Fed. So what does GDPplus say about the US economy? From the study (bold is mine):
First, over the recovery starting in the third quarter of 2009, GDPplus is considerably less volatile than either GDPE or GDPI – suggesting that much of the recent variation in the individual estimates has been noise.
Second, the GDPplus estimates imply a slightly faster pace of growth over the recovery than is commonly believed – a little over 2.5% per year, versus around 2.25% for GDPE.
Furthermore, the current GDPE data indicates that the US economy has stumbled badly over the past year, with average growth of only a little over 1.5% over the four quarters through the third quarter of 2013 – down markedly from its average pace over the previous four quarters. In contrast, GDPplus grew at a pace of a little under 3% over the four quarters through the third quarter of 2013 – not far from its average growth rate over the whole recovery.
In other words, most of the deceleration is GDPE over the past year appears to be a figment – pure measurement error sending an overly pessimistic signal about the pace of economic growth. It is likely closer to the truth that the US economy has continued to chug along over the past year (as it has through most of the recovery), at a pace that has been modest but fast enough to provide steady job growth and declines in the unemployment rate.
1.) This analysis helps explain why growth has apparently decelerated yet job growth has remained steady. In fact, the economy hasn’t decelerated. Likewise, the divergence between the stock market and economy doesn’t look as stark.
2.) GDPplus is another bit of evidence that the Fed’s “monetary policy-plus” has helped offset the 2013 spending cuts and tax hikes.
3.) GDPplus might also suggest the recent productivity slump was merely noise.
Two months after the launch of the Obamacare federal online health insurance exchange, it still isn’t fixed. Let’s be clear about that. Team Tech Surge may well be “operating with private sector velocity and effectiveness,” but that is really, really beside the point — unless of course your goal merely is to buck up shaky liberals. From the WSJ:
Federal officials said they had largely succeeded in repairing parts of the site that had most snarled users in the two months since its troubled launch, but acknowledged they only had begun to make headway on the biggest underlying problems: the system’s ability to verify users’ identities and accurately transmit enrollment data to insurers.
It’s like that Seinfeld episode where a frustrated Jerry is dealing with a rental car agent: “See, you know how to take the reservation, you just don’t know how to hold the reservation and that’s really the most important part of the reservation, the holding. Anybody can just take them.” Yes, selecting a plan on the site is important, but it’s all for nothing if the government can’t properly and accurately transmit enrollment data to insurers.
But there are also questions if the consumer access is really working so well. As Phil Klein explains:
For instance, an HHS chart – which Zients boasted about – shows system uptime now at 95.1 percent (excluding scheduled maintenance), which compares to 42.9 percent a month ago. But, the industry standard is for websites to be available for users 99.9 percent of the time. Anything below that is considered a failure and 95.1 percent is a disaster. …
A 95.1 percent uptime means that over the course of a year, a website would be down for about 18 days. Alternatively, imagine what a disaster it would be for sales if, during the holiday shopping season, Amazon’s website were down for about a day and a half, excluding scheduled maintenance.
Another goal that the administration had offered was to make it possible for 80 percent of those intending to sign up for insurance to get through the entire application process.
On the call, Centers for Medicare and Medicaid spokeswoman Julie Bataille was a bit vague about whether that goal had been met. … “Today, we’re now more in the zone of about 80 percent of users being able to do that same process successfully,” she said.
What does “in the zone of about” mean? Furthermore, she emphasized that not all Americans will feel comfortable signing up by the website, and could seek help by phone or in person. That suggests that the vague 80 percent number includes all forms of signing up for insurance, not just through the website.
And once again, comparing it to the private sector, imagine if one out of every five people trying to buy airplane tickets on Orbitz could not do so.
But, hey, that’s the private sector. Obamacare is working well enough — at least for government work. Or at least if your goal is the program’s survival until its 2nd birthday rather than meeting White House promises about health reform.
As I write for National Review Online today, this bit of the Evangelii Gaudium by Pope Francis may be the part mostly likely to raise left-wing cries of “Habemus Marxist Papam”:
Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system.
But priest and blogger Father John Zuhlsdorf (h/t to Ryan Ellis) makes the case that the word “inevitably” should have been translated at “by itself” — and that wrong translation is a pretty important error:
But the real point here is that in EG 54 the author says that “trickle down” economics cannot by itself produce the desired result.
That is, of course, correct.
No economic plan will solve the problems of the poor by itself. Economic plans must be carried out by people who have good, solid morals and values.
I submit that these morals and values must be rooted in religion.
Bottom line: Whoever did the English translation of EG 54 did Pope Francis and the watching world a grave disservice and caused confusion. The use of “inevitably” for ”por si’ mismo” changes the meaning of the key phrase in a significant way. The confusion will be difficult to rectify.
The Pope is not so much condemning a specific approach to helping the poor, though I think it is fair to assume that he isn’t a fan of “trickle-down” economics. What he is really going after is the notion that markets, plans, schemes, theories, what have you, can be relied on to help the poor by themselves, that is, without our personal engagement and choice to take responsibility actually to help the poor in concrete ways.
Pope Francis has offered a sharp critique and challenge to market capitalism and its proponents, focusing on materialist consumerism and rising inequality within nations. While the pope’s comments are excellent cause for reflection, they should not obscure the reality that innovative free enterprise is the greatest wealth generator ever discovered and the economic system most supportive of human freedom and flourishing.
In a new research note, JP Morgan Chase economist James Glassman doesn’t mention Pope Francis by name, but clearly — at least to me — had his comments in mind as he addressed the record of market economies:
Those concerned about global poverty have more to be thankful today than to complain about. The commonly-heard complaints that today’s economic systems fail to address the plight of the poor ignore several fundamental facts.
Poverty is not a modern phenomenon. Second, the developed economies are still recovering from deep recessions and in time will reach their full potential. That is, of course, why central bank policies remain so stimulative. Those hurt by the recession will be restored as the developed economies continue to recover. And third, despite the cyclical problems of the developed economies, the average global living standard is at a record high—the highest known in the records compiled by economists and still climbing, thanks to the support from the developed economies.
In other words, market-oriented economic systems are doing more to cure global poverty than any other effort in the past. …
Unflattering opinions about market-oriented economies see in the successes of some a system that rewards the survival of the fittest with benefits that only trickle down to others, glossing over the interdependence of economic actors that is fundamental to modern economic systems. Technological innovation often is portrayed as a destroyer of jobs rather than a creator of new economic frontiers. The benefits that come in the form of new jobs and industries and higher living standards are usually too difficult to visualize.
Technological innovation enables economies to do more with less. It’s the “less” that negative views about technology tend to fixate on. Yet, policy actions and new opportunities created by innovation create jobs for the displaced and it is the “more” that at the end of the day lifts a nation’s living standard. And because the distribution of income has widened in the last several decades, many assume this is an inevitable feature of free-market economies that calls for intervention from time to time.
For sure, times are challenging for many, owing to the trauma associated with our latest business cycle that thankfully is gradually passing, the rapid pace of technological change that has displaced many jobs, as it has for almost three centuries, and new competition from abroad as others attempt to replicate what the developed economies have done.
Nonetheless, in most cases, our hardships don’t compare with those our predecessors faced even in the past century, recalling the stories of those who lived through the Great Depression or were uprooted by the chaos of war and social upheaval in Europe and Asia in the first half of the 20th century.
We are fortunate. So are those who live and work in Western Europe, Canada, Japan, Taiwan, Israel, New Zealand, Australia, South Korea, parts of the oil-rich Middle East. Nonetheless, we account for only one billion of the world’s seven billion, or less than 15 percent of the world’s population.
Now others have a chance, because their governments have embarked on aggressive development agenda and are able to move forward quickly by opening their borders to the international business community and stabilize their currencies to those in the developed economies. China and India, in particular, are an example that is indirectly benefiting their neighbors and inspiring others.
The widening distribution of income in the US and other developed economies is attracting considerable attention. It would be unsettling, and destabilizing, if the global “economic pie” were static and one group were benefiting at the expense of others. Instead, what likely is driving the distribution of income is the wealth of opportunity that is associated with an expanding global “economic pie” and that because it is occurring at an eye-popping pace has uneven benefits. The global community has much to be thankful for and modern market-oriented economies deserve considerable credit for the battle against global poverty.
And this note about the chart at the top: “Estimates of World GDP, 1 Million BC – Present,” J. Bradford De Long, Department of Economics, University of California at Berkeley, 1998. JPMorgan Chase & Co., 2000 to the present.”
In order to persuade policymakers to do more fiscal stimulus (paid for, if need be, though higher taxes on the rich), some center-left economists have concocted a new theory of economic growth: Consumer spending is what drives growth. “Middle-out economics.” And since middle and lower class consumers have a “higher propensity to consume” than the wealthy, we need to redistribute income to lower inequality and boost growth. This theory confuses giving the economy a fillip versus addressing a possible long-term decline in US growth potential.
High levels of consumer spending are a consequence of economic growth, not a cause of 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. The debate continues as to the type of investment that is most important, and whether specific types of investment might be counterproductive (think of Stalin’s five-year plans). …
All of the books look closely at investment. All of them note the three flavors of investments: physical, human and ideas. None of them say that a high marginal propensity to consume might be a way to create sustained economic growth. …
Economic growth begins with investment and ends with consumer spending. Not the other way around. To the degree that policy makers are confused on this point, it should be no surprise that they are delivering low economic growth rates.
I will boil down my growth theory this, via Deirdre McCloskey:
If we can draw back from the unfreedom of anticapitalism and adopt instead the simple and obvious system of natural liberty, every person on the planet, in Vietnam and Colombia, India, and Keyna, can come to have, complements of the bourgeois virtues, the scope of life afforded now to a suburban minority in the West.
It’s the Bourgeois Deal: leave me alone to buy low and sell high, and in the long run I’ll make you rich.
If we let people own things … and if we let them try to make a profit from their ownership, and if we keep out of people’s lives the tentacles of government acting as an executive committee of the country club or worse, we will prosper materially and spiritually.