Kevin Drum - October 2013

Can We Blame Obamacare's Rollout Problems on a Kludgy Design?

| Wed Oct. 23, 2013 9:39 AM PDT

Mike Konczal argues today that the biggest problems with the rollout of the Obamacare website aren't really software issues at all. They're mostly due to the nature of Obamacare itself:

The first has to do with means-testing the program....The second issue is that the means-testing is necessary to link individuals up with individual private insurers....A third issue, and a major reason this is freaking people out, is that the first two problems could introduce adverse selection....And the fourth and final issue is that the federal government has had to pick up so much slack from rebelling states that didn’t want to implement health care.

In other words, if we had a simpler, single-payer system, we could have avoided most of the rollout problems. "Smarter conservatives who are thinking several moves ahead," writes Konczal, "understand that this failed rollout is a significant problem for conservatives. Because if all the problems are driven by means-testing, state-level decisions and privatization of social insurance, the fact that the core conservative plan for social insurance is focused like a laser beam on means-testing, block-granting and privatization is a rather large problem."

I very much agree that a simpler, broader national health care program would be far better than Obamacare, which was designed primarily to (a) win centrist and conservative votes, and (b) not rock the boat of existing private health insurance too much. Add to that all the usual horse-trading that it took to get various interest groups on board (doctors, insurers, AARP, pharma, etc.) and you end up with a messy kludge. It may be a historic first step, one that will eventually lead to a better future, but for now it's still a kludge.

Unfortunately, it's not clear to me that you can blame the rollout problems on this. Take a look at the Netherlands, as Matt Steinglass does here. Their health care system is well thought of, and it's remarkably similar to Obamacare: a public-private system that relies on private health insurers, public funding, and an individual mandate. As Steinglass points out, the Dutch system has some features that make it simpler than Obamacare, but it also has some features that make it more complex. But these are mostly nits. In the end, the Dutch system is really quite similar to Obamacare. And it works fine.

I'd submit that a big part of the reason for this is path dependence: the Dutch system is one that replaced an older single-payer system. In other words, they went in exactly the opposite direction from the one Konczal recommends. But it worked OK because the Dutch universally approved of national healthcare already and were universally covered by it. I assume that the details of the new system were contentious, but they were contentious primarily at a technocratic level. Nobody was fighting the basic idea of providing health care for all. That meant the new program could be rolled out on a reasonable schedule and without any big surprises or massive resistance.

Obamacare doesn't have that luxury. It's fighting not only technical issues, but also massive cultural and political resistance. This is what makes the rollout so hard.

If I had my way, we'd have a fairly simple, universal, single-payer health care system in the United States. It would work better; provide broader coverage; and probably be cheaper than what we have now. But countries like Switzerland and the Netherlands demonstrate that an Obamacare-like system can work reasonably well too. Konczal is certainly right to mock conservatives who don't seem to understand that Obamacare is fundamentally a pretty conservative design for national health care—which means that if it fails, it will hardly be a failure of old-school liberalism—but I think he goes too far when he tries to blame the rollout problems on that design. There was never any realistic hope of wiping out the entire private insurance industry and instituting a single-payer system anyway, which makes this all a bit academic, but even if Obamacare is a second-best design, it's still one that other countries have shown can be implemented effectively. I imagine that, over time, the same will be true here.

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Business Community Offers Its Final Comment on Debt Ceiling Debacle: Whatevs

| Wed Oct. 23, 2013 8:48 AM PDT

The Washington Post reports that over the past few years, business groups have heavily bankrolled the conservative Republicans who voted against raising the debt ceiling last week. That's no surprise. The bigger question is what they're going to do in the future. Will they continue to support tea party firebrands who threaten the U.S. economy and the health of the business community by playing games with the debt ceiling?

The chief lobbyist for the U.S. Chamber of Commerce, Bruce Josten, said the debt-ceiling roll call would be only one of many factors considered by the Chamber when it decides which candidates to support in 2014.

“Everyone has their own number one issue, and in the Chamber’s membership, again unlike any other association, we have a lot of members with a lot of different number one issues,” Josten said.

Similarly, Scott Talbott, senior vice president for policy at the Financial Services Roundtable, said: “This vote will be a factor in the future before we make contributions, though it will not necessarily determine the outcome.

....Lobbyists say they are also aware that some of the Republicans may have voted against raising the debt ceiling to give themselves political cover from angry tea party constituents, knowing there were enough votes to avoid a default.

Well, that ought to put the fear of God into them! Something tells me that these tea party heroes are getting a somewhat clearer message from groups like Heritage and Club for Growth, that are on the other side of this issue. This story make it pretty obvious that the Chamber of Commerce has no real intention of punishing anyone who voted against the debt ceiling increase; has no real beef with the tea party wing of the GOP; and has accepted that its role is to oppose Democrats but otherwise STFU. Everyone hoping for a bit more adult supervision in the Republican Party is going to have to look elsewhere.

How Smart Are American Kids? Amanda Ripley Responds

| Wed Oct. 23, 2013 7:57 AM PDT

Yesterday I wrote a post that was critical of Amanda Ripley's exclusive focus on the PISA test in her new book, The Smartest Kids in the World. There are other international tests that American kids do better on, after all, so looking solely at PISA makes our educational outcomes look worse than they probably are. Ripley emailed me the following response:

First of all, I am excited whenever anyone is interested in a debate about TIMSS versus PISA! I geeked out on this debate for many months while working on the book, and it was a pretty lonely existence—so I am happy to have an excuse to talk about it.

I agree it is critical to be skeptical of PISA—or any test or metric. All have their flaws. Which is why I spent a long time learning about all the various international tests—studying sample questions, reading about their strengths and weaknesses and analyzing their results over time.

In fact, I used many different data points to decide which countries to feature in the book, including high school graduation rates, college attainment rates, spending per pupil, rankings of national competitiveness and other economic indicators, as well as test data from TIMSS, PIRLS and NAEP.

As it turns out, international test data is strongly correlated from one test to another. (The correlation between TIMSS 2007 and PISA 2007 was 0.93.) But as you note, there are some differences between PISA and TIMSS findings. In the end, I made a very conscious decision to prioritize PISA findings for two main reasons:

  1. PISA is a test administered to 15-year-olds, which means it catches kids closer to the end of their compulsory schooling. TIMSS is given to 4th and 8th graders, which is useful, too, but I was most interested in the cumulative effects of countries' education systems, rather than the midpoint.
  2. Unlike TIMSS, PISA was designed to test students' abilities to apply knowledge to solve real-world problems and think for themselves. (TIMSS is a test of school curriculum.) I was most interested in those higher-order thinking skills, since they are increasingly valuable in the modern economy. To see if the hype on PISA was true, I took the test myself, and I found it to be a remarkably sophisticated test.

You are right that American kids do better on TIMSS, especially in reading. And you are right that many people exaggerate our failings relative to other countries. It drives me nuts. Which is why I went to great lengths throughout the book to avoid such hyperbole.

I feel weird quoting myself, but just in case you don't believe me, this is from p. 4: "The vast majority of countries did not manage to educate all their kids to high levels, not even all of their better-off kids. Compared to most countries, the United States was typical, not much better nor much worse...Our elementary students did fine on international tests, thank you very much, especially in reading. The problems arose in math and science, and they became most obvious when our kids grew into teenagers...."

Anyway, this is a healthy debate to be having, but some things are fairly clear. We now have a lower high-school graduation rate than about 20 other countries. Our young adults perform far below young adults in many other countries, including Finland, especially in numeracy, according to the results of the new PIAAC test (yet another ridiculous acronym!).

There is no need for alarmism, but there is need for concern. Even our wealthiest teenagers, those in the top quartile of the country based on socioeconomic background, perform 18th in the world on the PISA math test compared to wealthy kids worldwide. And those kids have highly educated parents and attend some of the best resourced school in the world.

We could do better. We could do worse. Whatever we do, I am grateful for the chance to debate these complicated matters in an open-minded and civil way.

For now, I'll let Ripley have the last word on this. But I've put The Smartest Kids in the World on my reading list, and I may have more to say after I've made my way through it.

Marijuana Will Probably Be Legal in Most of the Country by 2020

| Tue Oct. 22, 2013 8:44 PM PDT

Today, for the first time ever, Gallup reports that a solid majority of Americans are in favor of legalizing marijuana. I've drawn my own chart of Gallup's data because I think their chart doesn't really give a good sense of just how quickly public opinion on this is changing.

I have a rule of thumb that favorability ratings need to reach about 65 percent before you hit a tipping point where a major social change starts getting codified into law nationwide. There's nothing magic about this threshold. It's just a general sense based on previous issues similar to this. And as you can see, public opinion isn't merely rising on marijuana legalization, it's accelerating. The rate of increase has gone from about 0.5 points per year in the 90s to 1.5 points in the aughts to 4 points so far in the teens. If this keeps up, we'll pass the 65 percent threshold by 2016 or so.

There's a lot of noise in polls like this, and we might see a bit of regression to the mean in the next few years. And Mark Kleiman offers a few other cautionary notes here. So 2016 is hardly a sure thing. But 2020? That seems like a pretty safe bet in most of the country. By coincidence, this was my horseback guess when I wrote about marijuana back in 2009, and it looks like I don't have any good reason to change my mind on that.

Alan Greenspan Tries a Whole New Way to Blame Government for the Financial Crash

| Tue Oct. 22, 2013 3:51 PM PDT

Conservatives have been arguing for years that Fannie Mae and Freddie Mac were the real culprits behind the housing bubble. Unfortunately, their case has always been one that a five-year-old could see through. The data makes it plain that Fannie and Freddie didn't lead the charge into risky mortgage loan securitization. The private sector did. In 2002, just when the housing bubble was starting to heat up, Fannie's market share plummeted while the market share of the private sector shot up. That continued for several years until finally, around 2005, Fannie and Freddie got back in.

That was a big error. Still, it's pretty obvious that unless Fannie and Freddie had access to a time machine, it was the private sector the drove things along in the first place. The conservative argument doesn't survive even the barest scrutiny.

But wait! That just means conservatives need a more sophisticated argument. And who better to play the role of water carrier than Alan Greenspan? In his latest book, The Map and the Territory, he admits that a housing bubble probably would have developed even without Fannie and Freddie. However, by buying up subprime securitizations, Fannie and Freddie encouraged the private sector to produce ever more of them, and that in turn made bank balance sheets too highly leveraged to withstand the crash.

This is unquestionably more sophisticated than the original argument. But not by much. The problem is that although Fannie and Freddie might indeed have prompted the creation of excess mortgage securitization, they also sopped up a tremendous amount of it, thus removing it from the private banking system and making their balance sheets stronger. Brad DeLong illustrates this using a few simple charts, and concludes:

Thus Fannie Mae's intervention (a) fueled the housing bubble but (b) did not cause the financial crisis--rather, it (c) reduced the chances of financial crisis by diminishing the exposure of undercapitalized private-sector banks to subprime risk.

This isn't rocket science: this is supply and demand.

Greenspan, after his brief road-to-Damascus moment in 2008, has been busy ever since figuring out ways to continue believing everything he believed in the first place. This is a typical example: If it weren't for the government, he says, the private sector would have managed things just fine after all. The free market is never wrong.

But it ain't so. Fannie and Freddie may have added fuel to the fire, but the financial crisis was first and foremost a problem with private financial markets, which knew precisely the value of maintaining astronomical leverage ratios. What the government did wrong—and this very much includes Alan Greenspan, who was keenly aware of the problem of high leverage but did nothing to rein it in—was to regulate the financial system so lightly that it could get away with operating on razor-thin capital levels for years.

Greenspan has claimed for several years that he's finally gotten the message on this. Last night on Jon Stewart's show, he endorsed the idea of doubling capital requirements to 20 percent or more. Somehow, though, he's still never managed to accept any of the blame for ignoring this during the time when he actually had the influence to do something about it.

POSTSCRIPT: More generally, it's remarkable how bipartisan the belief in very high capital requirements is these days. And yet, somehow, there's zero chance of ever implementing them. Funny that.

How to Understand the $13 Billion JPMorgan Settlement

| Tue Oct. 22, 2013 12:23 PM PDT

Felix Salmon has a pretty good take on JPMorgan's $13 billion settlement with the government. Roughly speaking, $10 billion of it is for liabilities that JPM knew it was inheriting when it purchased Washington Mutual and Bear Stearns—liabilities that were fully incorporated into the original purchase price. The remaining $3 billion covers fines for actions taken directly under Jamie Dimon's watch. There's no SEC overreach here, and there are no unfair penalties for actions taken by companies that the government encouraged JPM to buy. More here.

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Obamacare: It's in Trouble, But the Fat Lady Hasn't Sung Yet

| Tue Oct. 22, 2013 11:32 AM PDT

I've been reading a lot about the problems with the Obamacare website over the past week, but I haven't commented much about it lately. That's largely because there's a huge fire hose of reports coming in, some of them contradictory, and it's really hard to make any concrete sense out of them. But here's where I am right now. No links to specific reports, just my sort of holistic feel for what's going on:

  • Take everything you hear with a grain of salt. Most of it—both good and bad—is coming from people who don't have direct, first-hand experience with the code.
  • That said, the problems are obviously pretty severe. Don't let wishful thinking persuade you otherwise.
  • Throwing programmers at the problem isn't likely to help. It takes months to get up to speed on a big piece of software, and you can't contribute fixes until you've done that. Like it or not, the website is going to get fixed by roughly the same team that wrote it in the first place.
  • Things do seem to be improving a bit. This is a hopeful sign because it suggests that the problems aren't entirely intractable. It's possible that fixes to half a dozen key pieces of code could get the system hobbling along.
  • Phones and paper forms aren't a panacea, but we should all keep in mind that, in a pinch, they'll do the job. As recently as a decade ago, that's all we would have had, and it would have worked OK.
  • This isn't the first time something like this has happened, so don't panic. Not yet, anyway.

I hate to say this because I know it's so typically Drummish, but the evidence so far suggests to me that we saw an underreaction during the first couple of weeks of October (probably shutdown related) followed by an overreaction now. Everybody is piling on based on news reports that offer up a steady stream of worrying tidbits. But that's no better than pretending everything is OK. Right now, most of us are still in the dark about what's truly wrong with the system. None of us should pretend to know more than we do.

That said, the reaction to Obamacare's problems really doesn't matter much. Within a few weeks, either the website will work or it won't. If it works, everyone will forget about the late-October panic fest. If it doesn't, Obamacare is screwed. The reality on the ground, not the spin, is all that matters now.

Yes, the Luddites Were Wrong. But So Was Thomas Malthus.

| Tue Oct. 22, 2013 9:59 AM PDT

I had a pretty caustic reaction yesterday to James Bessen's column arguing that improvements in technology won't have a big effect on middle-class workers. Tim Lee responded by calling it "uncharacteristically thoughtless and sneering."

Thoughtless? Sorry, I plead not guilty to that. But sneering? Yeah, maybe a bit. Here's the problem: Bessen happened to hit on one of my pet peeves: people who argue that workers ended up doing fine during the Industrial Revolution, so they'll end up doing fine in the upcoming Digital Revolution too. People who think otherwise are just modern-day Luddites who never learn.

Now, there's no question that workers in the 19th century feared that their livelihoods would be eliminated by machines. And although many of them were right in the short term, they were wrong in the long term: Machines ended up amplifying human labor, raising productivity so much that there were still jobs for everyone. So if the steam-powered Luddites were wrong then, why should we listen to the shiny new digital Luddites today?

This is obviously an appealing argument, but I happen to think it shows a serious lack of imagination. Smart machines won't simply replace some parts of work, they'll eventually replace all parts of work. As they get smarter, fewer and fewer people will be needed to maintain and program machines, and eventually no one at all will be needed. If machines ever achieve human-level intelligence, then by definition human labor will no longer be necessary.

But why should we believe this? It's possible that I'm missing something. After all, as Bessen says, the Luddites were wrong. Karl Marx was wrong. A lot of smart people were wrong about the Industrial Revolution. I'm arguing that this time it's different, but usually that isn't the case.

True enough. But let me offer another story along these lines. It's the story of Thomas Malthus.

You remember Malthus? In 1798 he predicted doom and gloom for the human race. Population grows geometrically, which means that any gains in productivity are soon swamped. If we produce more food, this simply encourages us to have more children, and more of those children survive to adulthood. This drives down wages and living standards to their old level, world without end. Permanent progress is impossible.

Today, Malthus has about the same reputation as the Luddites. But don't let that fool you: he was a brilliant economist, and he was right. That is, he was right about all of human history right up to about 1798. So when optimists argued that machines might make life better, Malthusians had every right to scoff. The moldboard plow didn't make life better. Neither did the printing press, or the lateen sail, or the cotton gin. Why should we believe that this time things would be different?

But they were. The rise of mechanical power really was different. As brilliant as he was, Malthus didn't see that.

Here's the moral of the story: Occasionally, things really are different this time around. The Industrial Revolution didn't put everyone out of work, but it did upend millennia of stagnation in living standards. This is why I reacted a little peevishly to Bessen. It's true that we've heard before that machines would destroy people's jobs, and this should certainly give us pause. But it's the beginning of the argument, not a slam dunk riposte. Sometimes, new technology really does change the world. Our job is to think hard about this stuff and try to figure out which inventions are game changers and which ones are just handy gadgets. It's inexcusably lazy to simply argue that previous rounds of technology didn't make humans obsolete, so neither will this one. You might not want to be a modern-day Luddite, but you don't want to be a modern-day Malthus either.

This time, things will be different.

POSTSCRIPT: Needless to say, this entire argument is predicated on the belief that machines will fairly rapidly become roughly as intelligent as humans. If you don't believe this, that's fine. Make your case. But it's a whole different conversation than the one about what will happen if machines keep getting smarter and smarter.

How Smart Are American Kids?

| Tue Oct. 22, 2013 8:56 AM PDT

For the past couple of weeks, Bob Somerby has been reviewing Amanda Ripley's new book, The Smartest Kids in the World. I haven't linked to any of Somerby's increasingly acerbic posts about Ripley because I haven't read the book and can't vouch for how fair they are. But one point he makes is simple enough: for her international comparisons, Ripley relies entirely on a single test, the PISA, on which American students do relatively poorly. She ignores others with longer pedigrees, like the TIMSS, on which Americans do fairly well.

Ripley apparently has some arguments about why PISA is a better test, and I can't really offer an assessment of that—though, like Somerby, it's hard not to suspect that part of the motivation is a desire to tell an alarming story about how poorly American kids are doing. However, it turns out that, in fact, Ripley doesn't always rely solely on PISA. On at least one occasion, when she's praising the improvement that Minnesota has made in math scores, she merely refers to a "major international test":

Ripley never names the international tests to which she refers in this passage, not even in her endnotes, which run 35 pages....Here’s the rest of the story:

In each case, Ripley is referring to Minnesota’s performance on the Trends in International Mathematics and Science Study (the TIMSS). In 1995 and in 2007, Minnesota participated in the TIMSS as a stand-alone entity....Minnesota’s fourth graders did score quite well on that TIMSS math test in 2007. Minnesota’s eighth graders did a bit less well, but they outscored most foreign nations too.

Having said that, please note a key point:

In this passage, Ripley accepts Minnesota’s performance on the TIMSS as a marker of the state’s elite status in math. And yet, all through the rest of her book, she completely ignores the TIMSS.

That's odd, all right. It's almost as if Ripley has a story she wants to tell, and cherry picks whatever statistics help her tell it. For the record, TIMSS (despite its name) also tests reading these days, and it turns out that American kids in general—not just Minnesotans—did pretty well in the latest round of testing: 9th out of 56 in math, 10th out of 56 in science, and 6th out of 53 in reading. For some reason, though, you never hear about that. After all, everyone, both liberals and conservatives, has their own educational hobbyhorses, and it's a lot easier to promote them if you tell an alarming story of educational decline. But the truth is different. If you look at all the evidence—TIMSS, PIRLS, PISA, NAEP, and other metrics—the story is rather more mixed and nuanced. America continues to do a poor job of educating its low-income kids and its black and Hispanic kids, something that's especially inexcusable given the increasing evidence that these children are far behind their peers even before they get to kindergarten. On the other hand, American kids more broadly are (a) doing better over time and (b) doing fairly well compared to kids in other countries. Like it or not, that's the story.

If you're interested, the latest TIMSS results are below. I originally posted these in December, but it might be worth seeing them again.

UPDATE: Mike the Mad Biologist has some more technical critiques of PISA here. Among other things, it turns out there was a sampling error in the U.S. administration of PISA that overrepresented low-income children.

Chart of the Day: Net New Jobs in September

| Tue Oct. 22, 2013 7:35 AM PDT

The American economy added 148,000 new jobs in September, but about 90,000 of those jobs were needed just to keep up with population growth, so net job growth clocked in at 58,000. That's worse than last month, but basically in the same general area of "meh." The BLS reports that nothing much has changed:

The unemployment rate, at 7.2 percent, changed little in September....The number of unemployed persons, at 11.3 million, was also little changed over the month....Both the civilian labor force participation rate, at 63.2 percent, and the employment-population ratio at 58.6 percent, were unchanged in September....The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was unchanged at 7.9 million in September.

We should be doing better than this. And if it weren't for the fiscal cliff deal and the sequester and all the other austerity measures we've put in place since 2010, we probably would be. These numbers might very well be double what we're actually seeing. This, as always, is a self-inflicted wound.