Kevin Drum - October 2011

Barack Obama Has Succeeded in Provoking Paul Ryan

| Wed Oct. 26, 2011 4:35 PM EDT

Jon Chait has an epic takedown of Paul Ryan's much-ballyhooed speech today about class warfare (Ryan is against it) and the politics of fear and envy (he's against that too). It's worth a read.

But Ryan's weak grasp of facts aside, what I'm really curious about is why Ryan gave this speech. You see, it was a fairly nasty speech, and Ryan doesn't usually give speeches like that. After all, he has a reputation as a policy wonk — the Republican Party's star policy wonk, in fact — and partisan stemwinders do nothing but undermine that reputation. So why did he do it, instead of giving a milder, numbers-heavy address that said pretty much the same thing?

My guess: Obama has gotten to him. Back in April, Obama invited Ryan to a speech about the budget and then ambushed him. With Ryan sitting expectantly in the front row, Obama ripped into Ryan's budget plan and reduced it to shreds. Ryan was stunned. Since then, following a brief respite to fight over the debt ceiling, Obama has kept up his attacks. I think this has rattled Ryan, causing him to lose his famous cool.

That's just a guess, of course. But regardless of whether this upsets David Brooks, it suggests that Republicans are finally feeling a little heat, which is forcing them to defend the indefensible a little more loudly and a little more explicitly than they're really used to. Good.

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Can Nonprofit HMOs Save Medicare?

| Wed Oct. 26, 2011 3:21 PM EDT

Several years ago, when I was working at the Washington Monthly, Paul Glastris recommended that I read a piece about Social Security private accounts written by Phil Longman. I read it, and my reaction was meh. That turned out to be a mistake. I'm still not really in favor of private accounts (pay-as-you-go funding works fine), and the transition costs would need to be honestly funded if you adopted them, but once I gave Longman's plan the thought it deserved, I realized that it was probably about the best private account plan out there. Details here, if you're interested.

All of which is just a long way of explaining that I'm now a lot more careful about dismissing anything Longman says. And yet....I guess I'm going to do it again. In the current issue of the Monthly, he takes on Medicare, which he says is a genuinely big problem that neither party is really addressing properly:

Here’s a better idea—one that offers a relatively painless and proven fix that will also vastly improve the quality of U.S. health care. Approximately a third of all Medicare spending goes for unnecessary surgeries, redundant testing, and other forms of overtreatment, according to well-accepted estimates. The largest single reason for this extraordinary volume of wasteful and often dangerous overtreatment is Medicare’s use of the “fee-for-service” method of compensating health care providers that dominates U.S. medicine, under which doctors and hospitals are rewarded according to how many procedures and tests they perform. To fix this, the federal government should do the following: announce a day certain and near when Medicare will be out of the business of subsidizing profitdriven, fee-for-service medicine.

Going forward, Medicare should instead contract exclusively with health care providers like the Mayo Clinic, Kaiser Permanente, the Cleveland Clinic, Intermountain Health Care, the Geisinger Health System, or even the Veterans Health Administration. All these are nonprofit, mission-driven, managed care organizations widely heralded by health care experts....Because doctors working at these institutions are not compensated on a fee-for-service basis, they are neither rewarded for performing unnecessary tests and surgeries nor penalized financially for keeping their patients well. And unlike for-profit HMOs, these institutions are not pressured by shareholders to maximize earnings through withholding appropriate care.

So here's my question: are these nonprofit HMOs really that great at controlling costs? Over the past 30 years, if their costs have been going up by even a little less than average — say, two percentage points less a year — their premiums would cost half the average of your standard fee-for-service plan.

So has that happened? I'm not sure where to get reliable data on this, but I doubt it. If nonprofit HMOs were really accomplishing a minor miracle like a 6% annual cost increase instead of an 8% increase, every corporation in America would be contracting with them for business by now. But that doesn't seem to be the case. As a single data point, here's an OPM summary of premiums for various healthcare plans for federal employees. Kaiser is the only one of Longman's nonprofits on the list, and their average price for an individual premium is $235. The average price for an individual premium from all the national fee-for-service plans is $230.

A single data point doesn't mean much. For one thing, the Kaiser plans were both for California, which is a high-cost state. And government regulations probably compress the price list. Still, they certainly don't seem to be charging dramatically less than the big national guys.

Maybe I'm missing something here. I'm a fan of the Kaiser/Mayo/Cleveland Clinic model, and I'd like to believe that it could be scaled up nationally and serve as the basis for lower-cost Medicare coverage. But except for the VA, which is something of a special case, Longman doesn't provide any numbers to suggest that nonprofit HMOs have found a consistent formula for keeping costs down while still providing high-quality medical care. More data, please.

Tribalism and Taxes

| Wed Oct. 26, 2011 12:52 PM EDT

Andrew Samwick:

I couldn't agree more with Pete on the discussions of tax policy that are now occurring as part of the Republican primary campaigns. The Republican primary campaign almost always gets sidetracked by some inane proposal for tax reform. This year it is the 9-9-9. And now we have another version of the flat tax, as if the crushing irrelevance of Steve Forbes to the primaries in 1996 and 2000 were not an indication of how unproductive the discussion will ultimately be. What are the prospects that a Republican President would actually be able to implement such a change if elected? They are equal to the chance that Republicans will both retain control of the House and secure a filibuster-proof majority in the Senate in 2012. In other words, absolutely zero.

True. But you have to look at this through a different lens. In the modern Republican Party, tax policy isn't really about tax policy anymore. It's mostly just meant to be evocative, a demonstration that you're really, truly part of the family. So the crazier it is, the better. Nobody—least of all Republican voters—seriously expects any of these proposals to become law.

What's really mind-blowing, though, is the precise nature of the tax policies that rich Republicans have so thoroughly succeeded in adding to the canon. Middle-class conservatives have become completely convinced that "good" tax policies include a flat tax, lower capital gains rates, and repeal of the estate tax, all of which are designed to benefit the rich almost exclusively. It would be as if Democrats had somehow convinced Wall Street that the key to prosperity was higher taxes on yachts, private jets, and Hamptons getaways.

Chart of the Day: College Grads Falling Behind

| Wed Oct. 26, 2011 11:56 AM EDT

Brad Plumer sends us to Michael Mandel, who reports:

Even as President Obama proposes some steps for student debt relief, real wages for college graduates continue to plunge. In the third quarter of 2011, full-time workers with a bachelor’s degree and no advanced degree earned 3.5% less, in real terms, than a year earlier. Male college graduates saw their real wages fall by 5.3% over the past year, while female college graduates had a 1.4% decline.

The charts below, also from Mandel, show the trend over the past decade. The net value of health insurance for these grads has increased about $2,000 in real terms since 1999, so even when you take that into account they're still seeing a steady drop in earnings.

College grads, of course, are still doing better than everyone else, both in terms of salary and levels of employment. Still, one of the big memes of the past decade has been about the growing complexity of modern jobs and the urgent need for more educated workers. More recently, this has sometimes turned into a story about structural unemployment: the Great Recession is all about the fact that we have too many of one kind of worker (mostly semi-skilled high school grads) and too few of another (knowledge-savvy, symbol-manipulating college grads). So we need to upgrade our educational system to provide us with more of the latter. But if there were really an urgent need for a more educated workforce, surely the salaries of college grads would be going up? Instead, they're going down. What exactly does this tell us about the demand for highly educated workers?

Regulatory Uncertainty Debunked, Part Infinity

| Wed Oct. 26, 2011 10:52 AM EDT

Bloomberg takes yet another crack at the idea that the Obama administration has unleashed a tsunami of regulations that are crippling the American economy:

Obama’s White House approved 613 federal rules during the first 33 months of his term, 4.7 percent fewer than the 643 cleared by President George W. Bush’s administration in the same time frame, according to an Office of Management and Budget statistical database reviewed by Bloomberg.

....The average annual cost of regulations under Obama [is] about $7 billion to $11 billion, compared with the $6.9 billion average from 1981 through 2008 in current dollars, according to the OMB data....Those numbers [...] encompass the expense of new regulations, and do not take into account the economic benefits of healthier children, safer roads or fewer industrial accidents.

....Of the 7,247 mass layoffs last year -- those involving at least 50 workers -- 18 were the result of government regulation, according to department data. Of the 3,114 mass layoffs in the first half of this year, 11 were related to government regulation. By comparison, 1,053 mass layoffs were attributed to business demand.

....“This is a perennial problem,” said [Sally] Katzen, a senior adviser at the Podesta Group in Washington, said in an interview. “When the Democrats are in the White House, the Republicans complain that there are too many costly, burdensome regulations inundating them.”

I'm not sure how many ways it's possible to debunk a single meme, but in this case it's a helluva lot. It turns out that (a) Obama has issued fewer regulations than Bush, (b) adjusted for inflation, they cost about the same as the average over the past 30 years, (c) this doesn't take into account the benefits of any of his regs anyway, and (d) only about 0.3% of mass layoffs during the Great Recession were related to new regulatory issues.

In other words, Sally Katzen is right: this is just something Republicans routinely gripe about whenever a Democrat is in the White House, much as they gripe about deficits and domestic spending, but only when a Democrat is in the White House. It's just a partisan scam. Time to move on.

UPDATE: I misread the Bloomberg piece and adjusted for inflation incorrectly. The Obama regs cost slightly more than the 1981-2008 average, not less. The text has been corrected.

Quote of the Day: Patented Blogging

| Wed Oct. 26, 2011 10:34 AM EDT

From Matt Yglesias:

What if Mickey Kaus held some kind of patent on policy blogging?

The mind reels. I suppose we'd all owe him royalties and be forced to write a certain minimum quota of anti-union posts every month.

More realistically, of course, blogging never would have taken off and the world would have to continue making do with the likes of Tom Friedman and George Will. All of which is an excellent argument for not allowing the patent office to issue patents for vague, moderately obvious evolutionary trends expressed via software. Congress should get on that, since they don't really seem to have anything better to do at the moment.

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For the Rich, Simple and Low Under Perry's Tax Plan

| Tue Oct. 25, 2011 11:47 PM EDT

Yesterday I proposed that we all spare a thought for whichever poor analyst at the Tax Policy Center got drafted to make sense of Rick Perry's flat-tax plan. Now we have a name: Roberton Williams, a senior fellow at TPC who crunched some numbers at the behest of the New York Times' Catherine Rampell. The chart on the right summarizes his handiwork.

As you can see, low-income taxpayers mostly do better under the current tax system. Middle-income taxpayers vary. High-income taxpayers mostly do better under Perry's plan. And very high-income taxpayers make out like bandits under Perry's plan.

No surprise there. What's underappreciated, though, is that this means the rich not only pay lower taxes, they also benefit from having simpler taxes. They do so much better under Perry's plan that they'll almost all just fill in his postcard without even bothering to calculate how much they might owe under the current regime.

Low and middle-income taxpayers, however, have no such luck. There's a pretty good chance they'll do better under the current system, which means they need to fill out Perry's postcard and fill out a current 1040 to see which one comes out better. No simple taxes for them.

In more ways than one, it's good to be rich in Rick Perry's America.

UPDATE: James Pethokoukis passes along a revenue analysis from John Dunham and Associates that was commissioned by the Perry campaign. It that says Perry's tax plan would raise $4.7 trillion less than current law over the six years from 2014-2020. Hello, bigger budget deficits! Under a dynamic scoring method that assumes Perry's plan would supercharge the economy, it would raise $1.7 trillion less. Of course, dynamic scoring is mostly a scam, so something in the range of $4 trillion is probably in the ballpark.

Yet More Grim Inequality News from the CBO

| Tue Oct. 25, 2011 6:54 PM EDT

The Congressional Budget Office is out with a timely new report on income inequality, which you can find here. Nickel version: The rich are getting richer, and the rest of us are just kind of drifting along.

The main summary chart is the one on the right. Since 1979, adjusted for inflation, incomes of the broad middle class (solid blue line labeled "21st to 80th percentiles") have increased about 40 percent, which comes to a sluggish 1 percent per year. During the same period, the incomes of the richest 1 percent have increased about 280 percent, or 7 percent per year. This is a pretty familiar chart by now, but one thing to note is that the incomes of the rich are pretty volatile: They drop a lot during recessions, but they also bounce back pretty quickly and regain their high growth rates as soon as the recession is over. This chart only goes through 2007, but the same dynamic has been at work in the aftermath of the Great Recession: a steep drop followed by an equally steep recovery.

Another set of charts is below. These are a little less familiar and need a bit of explanation. They show Gini inequality coefficients for different kinds of incomes, and the more distorted the chart the higher the inequality.

The top left chart shows the inequality of labor income in 1979 (light blue) and 2007 (dark blue). As you can see, it's moderately unequal, and the level of inequality hasn't changed a lot over the years. Likewise, the bottom right chart shows the inequality of capital gains income. This is extremely unequal, but again, the level of inequality hasn't changed too much. Both the light blue and dark blue lines are pretty close to each other.

The other two charts show business income and capital income, and they're quite different. Both show a fairly heavy amount of inequality, and, more interestingly, they show that the level of inequality has widened dramatically over the past three decades. Business income, which means income going to owners of private businesses, has grown much more concentrated, probably due to the growth of high incomes among privately owned professional firms (law, medicine, and finance). And capital income, which is largely dividends and rental income, has become far more concentrated as well. I'm not quite sure what story this tells, but one thing it tells us for sure is that most of the growth in income since 1979 has been in nonlabor income. Which is to say, not the kind of income that people like you and I get much of.

Getting the NGDP Debate Out Into the Open

| Tue Oct. 25, 2011 2:37 PM EDT

Kelly Evans writes in the Wall Street Journal today that NGDP targeting might not be the monetary panacea its supporters suggest:

There are at least three problems with this strategy, however. First, it assumes that the Fed can sensibly determine the “right” trend for nominal GDP. Second, it isn’t clear that it can actually achieve any such target. And third, doing so would run a huge risk of conflicting with the Fed’s congressional mandate to promote “stable prices”—something that can’t unilaterally be rewritten.

Matt Yglesias is unimpressed:

The fact that this doesn’t state the statutory mandate correctly should tip you off that something has gone amiss. The Fed’s actual mandate is a mixed mandate to pursue stable prices and full employment. For decades, however, it’s been a little bit unclear what this should mean in practice. One of the great advantages of an NGDP target is that it combines prices and real output (which is to say employment) in a single index.

....The other objections are worse. Having the Fed do anything assumes that the Fed can sensibly determine the “right” trend for whatever it’s doing. Similarly, any institution with any prescribed mission might fail to achieve the mission. Deploying this as an objection would be like a universal solvent.

I guess I'd read Evans a little more sympathetically. She does mention the Fed's dual mandate (low inflation and low unemployment) in the second sentence of her piece, so the rest of the column should probably be read partly as an opinion about whether the Fed should allow higher inflation right now in order to bring down unemployment. Matt is right that one of the theoretical virtues of NGDP targeting is that it combines both employment and inflation into a single metric, which would make this question moot for policymakers, but it unquestionably does imply that during recessions the Fed would tolerate higher inflation. I think that's a good thing (as does Matt); Evans doesn't. But it's certainly a key issue that deserves plenty of public discussion.

Evans's other two points are worth thinking about too. It's true that the Fed has to pick a target no matter what it's doing, but NGDP is a new one with no track record. That makes it trickier to get a consensus about what the right figure should be, and consensus is important since the whole point of NGDP targeting is that everyone has to believe the Fed is really, truly committed to its target. And the question of whether the Fed can hit an arbitrary NGDP target is critical. Central banks have pretty time-tested mechanisms for hitting inflation targets, but growth targets are something different. There are plenty of economists who are skeptical that monetary policy alone can accomplish this. I'm a little skeptical myself, and as I wrote yesterday, I also feel like some caution is warranted here. Finding some kind of mechanical monetary rule that automatically produces stable growth is sort of the Holy Grail of monetary economics, and we should subject any new proposed rule to plenty of tough questioning.

In the end, I think that for lots of people the issue of NGDP targeting has become sort of a foil for a different question: should the Fed engage in massive monetary easing right now in order to get the economy back on track? NGDP targeting says yes, so those of us in favor of easing are likely to find it an agreeable idea. Conversely, those who are afraid of the consequences of massive easing are likely to play up its problems. That's human nature for you. But regardless, it's good to get all this stuff out in the open.

UPDATE: Bennett McCallum, who's been advocating the idea of NGDP targeting (aka nominal income targeting) since the 80s, has a pretty readable primer on the subject here. Worth a look.

A Look Inside the Mind of Mitt Romney

| Tue Oct. 25, 2011 1:49 PM EDT

I'm a huge fan of Benjamin Wallace-Wells, and this month he has a terrific profile of Mitt Romney in New York magazine. But it probably isn't really right to call it a profile of Romney per se. It's more a profile of the Romney method, the way that Bain Capital, the private equity firm he ran during the 80s, helped usher in the shareholder value revolution that made American businesses leaner and meaner; spurred mass layoffs in the name of efficiency; and made huge, performance-based compensation for executives a standard feature of American corporations.

The whole thing is well worth reading, but if it's Romney himself you want some insight about, it mostly comes at the end. After retailing an anecdote about how Romney's interest in healthcare reform in Massachusetts was spurred by a short conversation with one of his former Bain partners, we get this:

What separates Romney’s plan from Obama’s—and gives some clues about his potential presidency—is its almost-accidental origin. Romney did not begin with a philosophical quest to improve American health care. He began with the idea of himself as a problem solver and asked those around him for a problem that he might usefully solve. I remembered, when I was told this story, an anecdote I’d heard from a former political staffer of Romney’s. On even basic philosophical questions like abortion, the staffer said, Romney did not try to resolve the question in the abstract, as a matter of principle, and would consider instead various hypothetical cases—for instance, a late-term abortion—and build from them a politics. The line that Romney is a flip-flopper may vastly understate the depth of the condition.

It is arresting to imagine a Romney White House, inevitably filled with as many former Bain colleagues as each of his other public ventures have been: The PowerPoints, the 80-20 jargon, the clinical separation of decision-making from ideology, the detachment of those decisions from moral consequence, a persistent blind spot for people as people. It would represent the final ascension of a perfectly American type, one that has already remade the culture of business. I once asked a Bain colleague of Romney’s how Romney thought of his own core competence. “I think Mitt thinks he’s good at being Mitt Romney,” the colleague said.

It's hard not to think of Robert McNamara and the whiz kids when you read that, and hard not to wonder if Romney's updated version would be equally disastrous. It would probably depend on circumstances. In Massachusetts it basically worked out OK. But if something like the Vietnam War crops up during a Romney presidency, it might not.

Anyway, read the whole thing. Immersing yourself once again in the LBO fever of the 80s and its consequences might or might not make your day, but it does give some real insight into Mitt Romney's character. Since he might very well be your next president, that's worth knowing.