Category Archives: Timothy Taylor is my Favorite Blogger

A Peevish Thought on Obamacare

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Timothy Taylor writes,

Setting up a health insurance system that offers the right incentives to patients and providers for cost-effectiveness and innovation is a fundamentally difficult task, and those practical challenges don’t disappear just by invoking talismanic phrases like “universal coverage” or “single-payer.”

The worst thing about Obamacare is not the web site glitches or the employer mandates or even the high marginal tax rates. The worst thing is that the Obama folks regard catastrophic health insurance (what I call “real insurance”) as bad and they view “insurance” that covers every little expense as good. I think it’s the other way around.

Even if you think that people will skimp on checkups if they have catastrophic coverage, then the right policy is to subsidize checkups, not insulate them from the cost of all medical services.

I like to say that as individuals, we want unlimited access to medical services without having to pay for them. Comprehensive health insurance does offer that. However, collectively, that does not work. If medical services aren’t rationed by individuals making choices, they have to be rationed by bureaucrats.

That brings us to the Independent Payment Advisory Board, or what Sarah Palin called the death panels. The IPAB is the only economically meaningful mechanism for reducing spending under Obamacare. Fifteen bureaucrats in Washington will tell doctors and patients what to do and what not to do.

If Obamacare remains in place, then I predict that in ten years IPAB will be the most powerful agency in Washington. More powerful than the Fed, the NSA, or the IRS. In fact, the health care reformers on the left want it that way. Former Senator Tom Daschle explicitly said that we need something like the Fed to run health care.

Have a nice day.

Timothy Taylor makes a prediction

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He writes,

ultimately, I expect that the growth in services trade will reduce pressures for protectionism. Instead of talking about hypothetical trade in hypothetical completed goods–like cars and computers–it will become clear that portions of the value-added are often being created in different places. Pushing for trade protectionism in the name of specific products made in other countries like cars or steel or televisions is one thing, but I’m not sure any similar protectionist movement will form to prevent, say, insurance record-keeping or checking diagnostic X-rays from happening in another country. In addition, countries will need to be wary of placing tariffs or other restrictions on imports, because many imports will be part of a global production chain, and domestic produces will be quick to point out how inhibiting their access to those global connections will injure the domestic economy.

He cites a paper by Prakash Loungani and Saurabh Mishra and points out that trade in services has been growing three times faster than trade in goods. I would make the additional prediction that the Great Factor-Price Equalization will continue.

Doubts on Solar

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Timothy Taylor finds a study by Charles R. Frank, Jr. that tries to assess the cost of solar’s lack of reliability. Taylor quotes Frank:

we estimate that it would take 7.30 MW of solar capacity, costing roughly four times as much per MW to produce the same electrical output with the same degree of reliability as a baseload gas combined cycle plant. It requires an investment of approximately $29 million in utility-scale solar capacity to produce the same output with the same reliability as a $1 million investment in gas combined cycle.

Taking Gains as Leisure

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The BLS’ Shawn Sprague writes,

workers in the U.S. business sector worked virtually the same number of hours in 2013 as they had in 1998—approximately 194 billion labor hours.1 What this means is that there was ultimately no growth at all in the number of hours worked over this 15-year period, despite the fact that the U.S population gained over 40 million people during that time, and despite the fact that there were thousands of new businesses established during that time.

And given this lack of growth in labor hours, it is perhaps even more striking that American businesses still managed to produce 42 percent—or $3.5 trillion—more output in 2013 than they had in 1998, even after adjusting for inflation.

Pointer from Timothy Taylor.

Some comments:

1. The gains in real well-being can be vastly under-estimated or over-estimated, depending on how well one adjusts for inflation and other factors, like un-measured consumers’ surplus and the greater variety of goods and services to choose from. My own view is that the gains are somewhat under-estimated.

2. There has been a large increase in leisure. How much of this is a welfare gain, though? My hypothesis is that many more people would work if government policy did not create so many disincentives to supply and demand labor. Just look at Social Security, with its huge payroll-tax disincentive for young people to work and its large subsidy to older people to consume leisure. If my hypothesis is right, then reducing these disincentives would lead to a lot more market work and a slower growth rate in leisure.

3. What accounts for the increase in leisure since 1998? The biggest factor is probably demographics, as many Baby Boomers have gone from prime working years to retirement years. Next, I point to factor-price equalization and to an increase in the wedge between compensation and take-home pay represented by health insurance costs. For the most recent five years, give some weight to Casey Mulligan’s narrative. A lot of economists would point to aggregate demand, but I no longer respect that concept.

Timothy Taylor on Economics and Morality

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He writes,

After all, many academic subjects study unsavory aspects of human behavior. Political science, history, psychology, sociology, and literature are often concerned with aggression, obsessiveness, selfishness, and cruelty, not to mention lust, sloth, greed, envy, pride, wrath, and gluttony. But no one seems to fear that students in these other disciplines are on the fast track to becoming sociopaths. Why is economics supposed to be so uniquely corrupting?

I think that economics is singled out for opprobrium because of the way that it challenges the intention heuristic. The intention heuristic says that if the intentions of an act are selfless and well-meaning, then the act is good. If the intentions are self-interested, then it is not good.

The intention heuristic is what generates the veneration of non-profits. One can readily suppose that the intentions of a non-profit are better than those of a for-profit institution. Accordingly, it seems morally superior to work at a non-profit. However, once one drops the intention heuristic, the case for non-profits becomes much weaker.

I think that the ability to think beyond the intention heuristic is very important in social and political philosophy. However, there are many people who are heavily invested in the intention heuristic, and it is my hypothesis that such people are anxious to discredit economics.

Occupational Licensing and Anti-trust

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Aaron Edlin and Rebecca Haw write,

Some recent additions to the list of professions requiring licensing include locksmiths, beekeepers, auctioneers, interior designers, fortune tellers, tour guides, and shampooers.

They argue that when licensing boards are made up of professionals who are currently licensed, they should be subject to antitrust laws.

Pointer from Timothy Taylor.

What to do about occupational licensing?

I think that the best idea would be to eliminate it. Instead of occupational licensing, have occupational certification. A consumer would still be free to accept services from an individual who is not certified.

Assuming that elimination of licensing is not going to fly, then I think that Congress should require states to accept licenses from other states except in cases where a fundamental difference in professional requirements exists across states. If being a dental assistant in Alabama is pretty much the same job as in Wyoming, then someone who is licensed in one state should be entitled to practice in the other. To deny the licenses from another state is a violation of the Commerce clause, which is intended to prevent states from setting up barriers to trade with one another.

Public Health and Conscientiousness

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Timothy Taylor writes,

Personal habits and public policies regarding cleanliness changed so much in the 19th and into the early 20th century that historians sometimes write of a “sanitation revolution,” which led to dramatic improvements in public health. It’s time to ramp up a “chronic disease revolution,” which would include the health care system but also reach beyond it. Modern information technology, and the coming arrival of the “Internet-of-things” will open up new possibilities here. A pillbox could be wired into the Internet, and if it isn’t opened at the appropriate times during the day, the person would receive a text or email, and then a phone call, and then maybe a personal visit of reminder. It’s now possible for a home machine to take a small blood sample from a diabetic, analyze that sample, and send in the results. Information technology makes it much easier to have interactive systems that offer reminders about diet or exercise. The benefits from improved management of chronic conditions is potentially very large.

Taylor is calling for an increase in conscientiousness, with the aid of technology. The late Gary Becker was fond of saying that young people behave as if they expect that in their lifetimes medications will be able to undo the adverse impact of overeating–and they are probably right. So Becker was arguing that technology may allow people to do away with conscientiousness.

Noah Smith on Solar Power

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He writes,

Solar is a libertarian dream. The utility companies that states like Oklahoma are scrambling to protect are cozy government-protected monopolies (though eventually they too will survive by switching to solar). Rooftop solar offers a chance for independent homeowners to free themselves from reliance on a collectivist system. And solar is a triumph of human ingenuity, the kind of advance that Julian Simon believed would always save us from “limits to growth” – in the long run, oil and coal and gas will run out, but cheap solar will sustain capitalism.

Pointer from Mark Thoma. I agree that as innovations continue to bring about reductions in the relative cost of solar power, many benefits will ensue. Still, I believe that the Department of Energy’s loan guarantees to solar companies (and others) were not good policy, and certainly not libertarian in spirit. I am interested in engaging with those who would criticize such a belief. I am not interested in engaging the theory that conservatives, because of their evil nature, are opponents of solar power.

By the way, as I read the table in Timothy Taylor’s post, solar power does not come across as particularly inexpensive in the near future. And you should also read this earlier Timothy Taylor post:

When a technological standard is required, then firms which could have reduced pollution more cheaply are not allowed to gain a competitive advantage from doing so–because all must follow the prescribed standard.

Read the whole post, which describes the tendency for environmental regulation to become less about reducing pollution and more about restricting competition.

I propose that we try to eliminate from discussions of public policy related to solar and nuclear energy any arguments that are based on sentiment, wishful thinking, or rent-seeking. Everybody police their own side.

Crowding Out

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Timothy Taylor writes,

Huntley describes the central estimate about the long-run effects of more government borrowing based on the review of the evidence like this: For each additional dollar of government budget deficit, private saving rises by 43 cents, and the inflow of foreign capital rises by 24 cents. Thus, [e]ach additional dollar of deficit leads to a 33 cent decline in domestic investment.

Jonathan Huntley works for the Congressional Budget Office. Taylor links to the full report. I like the way that Taylor explains the issue.

A few remarks:

1. A Keynesian would be quick to note that crowding out varies over the business cycle. When the economy is weak, there is excess saving, and there is no crowding out.

2. Larry Summers’ hypothesis of secular stagnation says that there has not been crowding out for two decades.

3. I have never heard a conservative economist complain about crowding out during a Republican Administration.

4. I have never heard a liberal economist complain about crowding out, ever. Complaining about (3) does not count.

This report comes out at a time in which the CBO has gotten an unusual amount of negative press. See this WaPo story, for example. Some remarks about this:

1. I think it is difficult for journalists or the general public to understand that some economic estimates are more unreliable than others. For example, estimating the cost of a government program is subject to some error, but most of the time you can get in the ballpark. There is more uncertainty about revenue from tax changes, because of behavioral responses, but one can still arrive at a reasonable range of estimates. On the other hand, estimating the macroeconomic impact of fiscal policy (the so-called multiplier) poses a much higher level of difficulty. You need a macroeconomic model. You need to take a position on the theory of monetary offset. When I was invited to give a lunch talk at CBO, I tried to emphasize that the difference between the uncertainty involved in macroeconomic forecasting and analysis on the one hand and the uncertainty in forecast and estimating the cost of a government program is a matter of kind, not just of degree. And I recommended that CBO should do something to emphasize this to the public. The crowding-out analysis is one that I would put in the high-uncertainty category.

2. It disturbs me that the press takes shots at the CBO only when the analysis raises doubts about progressive policies. If you are not going to raise doubts about CBO analysis of the stimulus, which is based on models that by now are far out of the mainstream, then you should not raise doubts about legitimately mainstream analysis of minimum wages, the employment effects of Obamacare, and, yes, crowding out.

3. Progressives who attack the CBO may be seeking a short-term gain in material at a long-term positional cost. Looking ahead a few moves, I do not think it helps progressives if they convince the public to distrust nonpartisan government experts.