Kevin Drum

Who's Afraid of an Itsy Bitsy Bit of Inflation, Anyway?

| Thu Jul. 10, 2014 12:19 PM EDT

Why are so many people obsessed with "hard money"? Why the endless hysterics about the prospect of inflation getting higher than 2 percent? Paul Krugman, like many others, thinks it's basically a class issue. If you have a lot of debt, inflation is a good thing because it lowers the real value of your debt. But if you're rich and you have lots of assets, the opposite is true. Here's Krugman using data from the Census Bureau's SIPP database:

Only the top end have more financial assets (as opposed to real assets like housing) than they have nominal debt; so they’re much more likely to be hurt by mild inflation and be helped by deflation than the rest.

Now, it’s true that some of these financial assets are stocks, which are claims on real assets. If we only look at interest-bearing assets, even the top group has more liabilities than assets.

But the SIPP top isn’t very high; in 2007 you needed a net worth of more than $8 million just to be in the top 1 percent. And since the ratio of interest-bearing assets to debt is clearly rising with wealth, we can be sure that the truly wealthy are indeed in the category where they have more to lose than to gain by a rise in the price level.

Brad DeLong isn't buying it:

It is true that the rich do have more nominal assets than liabilities....But it is also true that America's rich have a lot of real assets whose value depends on a strong and growing economy.

I find it implausible to claim that the net gain is positive when we net out the (slight) real gain to the rich from lower inflation with the (large) real loss to rich from lower capital utilization. It's not a material interest in low inflation that we are dealing with here...

I don't think I buy Krugman's claim either. He's basically saying that hard money hysteria is driven by the material interests of the top 0.1 percent, but even if you grant them the clout to get the entire country on their side, do the super rich really love low inflation in the first place? Do they own a lot of long-term, fixed-interest assets that decline in value when inflation increases? Fifty years ago, sure. But today? Not so much. This is precisely the group with the most sophisticated investment strategies, highly diversified and hedged against things like simple inflation risks.

Plus there's DeLong's point: even if they do own a lot of assets that are sensitive to inflation, they own even more assets that are sensitive to lousy economic growth. If higher inflation also helped produce higher growth, they'd almost certainly come out ahead.

So what's the deal? I'd guess that it's a few things. First, the sad truth is that virtually no one believes that high inflation helps economic growth when the economy is weak. I believe it. Krugman believes it. DeLong believes it. But among those who don't follow the minutiae of economic research—i.e., nearly everyone—it sounds crazy. That goes for the top 0.1 percent as well as it does for everyone else. If they truly believed that higher inflation would get the economy roaring again, they might support it. (Might!) But they don't.

Second, there's the legitimate fear of accelerating inflation once you let your foot off the brake. This fear isn't very legitimate, since if there's one thing the Fed knows how to do, it's stomp on inflation if it gets out of control. Nonetheless, there are plenty of people with a defensible belief that a credible commitment to low inflation does more good than harm in the long run. After all, stomping on inflation is pretty painful.

Third, there's the very sensible fear among the middle class that high inflation is just a sneaky way to erode real wages. This is sensible because it's true. There are several avenues by which higher inflation helps weak economies that are trapped at the zero bound, and one of them is by allowing wages to decline until employment reaches a new equilibrium. I think that lots of people understand this instinctively.

Fourth, there's fear of the 70s, which apparently won't go away until everyone who was alive during the 70s is dead. Which is going to be a while.

It's worth noting that hard money convictions are the norm virtually everywhere in the developed world, even in places that are a lot more egalitarian than the United States. Inflationary fears may be irrational, especially under our current economic conditions, but ancient fears are hard to deal with. As it happens, the erosion of assets during the 70s was unique to the conditions of the 70s, which included a lot more than just a few years of high inflation. But inflation is what people remember, so inflation is still what they fear.

Bottome line: Even among non-hysterics, I'd say that hardly anyone really, truly believes in their hearts that high inflation would be good for economic growth. It's the kind of thing that you have to convince yourself of by sheer mental effort, and even at that you're probably still a little wobbly about the whole idea. It just seems so crazy. Until that changes, fear of inflation isn't going anywhere.

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Pundits, Start Your Engines!

| Thu Jul. 10, 2014 11:16 AM EDT

So what's the next step in the border crisis? President Obama has introduced an emergency proposal; he's traveled to Texas to discuss it with his political opponents; and in order to stem the tide of immigrants he's declined to engage in photo-ops at the border that might encourage the tide to continue.

Republicans, for their part, appear at the moment to be completely unwilling to do anything at all.

So here's the next step: a barrage of columns from our nation's pundits acknowledging Republican intransigence but then insisting that, ultimately, the lack of action is Obama's fault. Because leadership. Because LBJ. Because schmoozing. Because lecturing. Because relationships. Because political capital. Because great presidents somehow figure out a way to get things done. Rinse and repeat.

It's More or Less Final: Obamacare Has Insured About 11 Million People

| Thu Jul. 10, 2014 12:31 AM EDT

Jonathan Cohn passes along the results of a new study from the Commonwealth Fund which estimates that the ranks of the uninsured have dropped by about 5 percentage points since the start of the Obamacare rollout:

To put that in more concrete terms, there are still a lot of Americans walking around without health insurance today. But there are about 9.5 million fewer of them than there were last fall, almost certainly because so many people have enrolled in the newly expanded Medicaid program or purchased subsidized insurance through the Obamacare marketplaces.

How does that compare to expectations? The Congressional Budget Office predicted that, one year into full implementation, Obamacare would reduce the the number of Americans without insurance by 12 million. That included the young adults who got insurance before 2014, by signing onto their parents’ plans. There’s been some controversy over exactly how many people that is, but the best estimates I’ve seen place it somewhere between 1 and 2.5 million. Add that number to the 9.5 million from the Commonwealth survey, and you're close or equal to the CBO projections.

So that's probably a total of around 11 million or so. Nearly all of the estimates now seem to be converging around this number, and given the inherent uncertainty in measuring the uninsured it seem like this is about as good as we're going to get.

Quote of the Day: "This Isn't Theater"

| Wed Jul. 9, 2014 7:18 PM EDT

From President Obama, asked why he wasn't making a visit to the border during his trip to Texas today:

This isn't theater. This is a problem.

"I'm not interested in a photo-op," he said. "I'm interested in solving a problem." It would be nice if he weren't the only one.

Medicare Just Keeps Producing Great Budget News

| Wed Jul. 9, 2014 2:20 PM EDT

Medicare has been a bastion of good news lately. Every year, the CBO reduces its baseline estimate of Medicare costs, which have dropped by more than $1,000 since 2010. So what's going on? Tricia Neuman and Juliette Cubanski of the Kaiser Family Foundation round up the evidence:

It is clear that the Medicare savings provisions in the ACA, such as reductions in provider payment updates and Medicare Advantage payments, have played a major role....In addition, the Budget Control Act of 2011 also exerted downward pressure on Medicare spending through sequestration that reduced payments to providers and plans by 2 percent beginning in 2013.  And yet even after incorporating these scheduled payment reductions in the baseline, CBO has continued to lower its projections of Medicare spending.

So what else might be going on here? In addition to scheduled reductions in Medicare’s more formulaic payment rates, providers may be tightening their belts and looking to deliver care more efficiently in response to financial incentives included in the ACA, and it is possible that these changes are having a bigger effect than expected. For example, CMS recently reported that hospital readmission rates dropped by 130,000 between January 2012 and August 2013. It is also possible that hospitals and other providers are using data and other analytic tools more successfully to track utilization and spending and to reduce excess costs. Another more straightforward factor is that several expensive and popular brand-name drugs have gone off patent in recent years, which has helped to keep Medicare drug spending in check.

No one knows for sure if these reductions are permanent, or whether high growth rates will reappear in the future. But even if the low growth rates of the past few years can't be sustained, I suspect that Medicare growth will continue to be lower than anyone expected. There are two reasons for this. First, the growth rate of medical costs in general has been declining steadily for the past 30 years, and this has now been going on long enough that it's highly unlikely to be a statistical blip. After a surge in the 80s and 90s, we really are returning to the growth rates that were common earlier in the century, and obviously this will affect Medicare.

Second, Obamacare really will have an impact. Not everything in it will work, but it includes a lot of different cost-cutting measures and some of them will turn out to be pretty effective. And who knows? If Republicans ever stop pouting over Obamacare, we might even be able to experiment with different kinds of cost reductions.

There's a fair amount of year-to-year variability in health care inflation, and we should expect to have some years of high growth. But I'll bet the average over the next decade is somewhere around 2 percent above the general inflation rate. That's not too bad.

Vladimir Putin Abandons His Erstwhile Allies

| Wed Jul. 9, 2014 10:31 AM EDT

Julia Ioffe writes about the latest from Ukraine:

As the Ukrainian army chases separatists from the strongholds they've held for months, Moscow has barely said anything—despite its springtime rants about protecting Russians wherever they may be in the world....As I wrote back in May, now that he's sown chaos in Ukraine—but uneager to participate in someone else's civil war—President Vladimir Putin has thrown the rebels under the bus. In June, rebel leader Igor Strelkov said that "Putin betrayed us," and that betrayal has only deepened as Kiev launched its all-out offensive last week. Moscow, having started all this, has offered no help to the rebels.

The betrayal, it seems, may be even nastier than that. According to a Ukrainian security council spokesman, the Russians have sealed their border, shutting down three key crossings. Not only are they not letting men and materiel into Ukraine from Russia, but they're also blocking men and materiel from flowing in the opposite direction. That is, the very men that Moscow has riled up to the extent that they have taken up arms and are ready to die in order to get the region out of Ukraine and into Russia are not welcome to seek refuge in Russia. (Not even, it seems, the ones originally from Russia.) A group of 300 fleeing rebels reportedly even came under fire by the Russians as they tried to escape into Russia.

That Putin. He's quite the guy, isn't he? It appears that he eventually figured out that Ukraine wasn't going to fall neatly into his lap, and the cost of fomenting an all-out war there was simply too great. It turned out that Ukrainians themselves didn't support secession; Western powers were clearly willing to ramp up sanctions if things got too nasty; and the payoff for victory was too small even if he had succeeded. So now he's had to swallow a new, more pro-Western Ukraine—the very thing that started this whole affair—along with the prospect of renewed anti-Russian enmity from practically every country on his border.

But he got Crimea out of the deal. Maybe that made it worth it.

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Yet Another Day in Republican Scumbaggery

| Wed Jul. 9, 2014 1:00 AM EDT

Today President Obama asked Congress to approve $3.7 billion in emergency funding to help deal with the surge of minors crossing the border. You may color me unsurprised over the Republican response:

The proposal was quickly met with broad skepticism among Republican lawmakers, who were doubtful that the package would be approved quickly — if at all....GOP leaders, who have called on Obama to take stronger action, said they were reluctant to give the administration a “blank check” without ­more-detailed plans to ensure that the money would help stem the crisis at the border.

The president “is asking to use billions of taxpayer dollars without accountability or a plan in place to actually stop the border crisis,” Rep. Bob Goodlatte (R-Va.), chairman of the House Judiciary Committee, said in a statement.

Asked if he thought lawmakers would approve the proposal, Sen. Marco Rubio (R-Fla.) said, “No, given the mood here in Washington, I don’t have confidence it will happen.”

Well, of course it won't happen. The crisis along the border is tailor made for Republicans. It makes their base hopping mad, it juices their campaign fundraising, and anytime the government is unable to address a problem it makes Obama look bad. Why on earth would Republicans want to do anything to change any of this?

As long as Obama is president, chaos is good for Republicans. After all, most voters don't really know who's at fault when things go wrong, they just know there's a crisis and Obama doesn't seem to be doing anything about it. Exploiting that may be cynical and revolting, but hey, politics ain't beanbag. And in case you haven't heard, there's an election coming up.

Finally, Someone With the Guts to Call for Obama's Impeachment

| Tue Jul. 8, 2014 2:34 PM EDT

I see that Sarah Palin is apparently starved for attention again. Here's her latest:

President Obama’s rewarding of lawlessness, including his own, is the foundational problem here. It’s not going to get better, and in fact irreparable harm can be done in this lame-duck term as he continues to make up his own laws as he goes along, and, mark my words, will next meddle in the U.S. Court System with appointments that will forever change the basic interpretation of our Constitution’s role in protecting our rights.

It’s time to impeach; and on behalf of American workers and legal immigrants of all backgrounds, we should vehemently oppose any politician on the left or right who would hesitate in voting for articles of impeachment.

The many impeachable offenses of Barack Obama can no longer be ignored. If after all this he’s not impeachable, then no one is.

Quite right. Minors are swarming our borders because American exceptionalism is at risk thanks to Obama's failure to help the Ukrainians which means our enemies no longer fear us and the dollar is being debased. Or was it because he failed to arm the Syrian rebels? I forget. Something to do with Putin, though. And the Fed. Plus, um, recess appointments and one-year extensions to TyrannyCare mandates. And Benghazi.

Whatever. Impeach Obama! I sure hope every Republican in the country is asked to weigh in on this.

Will the Washington Post Destroy "Incidental" NSA Intercepts When It's Done With Them?

| Tue Jul. 8, 2014 12:27 PM EDT

A couple of days ago the Washington Post published an article based on a cache of thousands of surveillance intercepts that it got from Edward Snowden. That produced the suggestion—not widespread, I think, but still out there—that the Post was now violating privacy just like the NSA has been. Glenn Greenwald thought this was pretty dumb, but Julian Sanchez wasn't so sure:

Doesn't seem TOTALLY frivolous. I hope you & WaPo are destroying copies of intimate communications once reporting's done.

This is actually....a good point. The charge against the NSA isn't just that it ends up surveilling thousands of innocent people who are merely innocent bystanders in court-approved investigations. Even critics concede that this is inevitable to some extent. The problem is that once the NSA has collected all these "incidental" intercepts, they keep them forever in their databases and make them available to other law enforcement agencies for whatever use they want to make of them. At the very least, privacy advocates would like these incidental collections to be destroyed after they've served their immediate purpose.

So will the Post do this? Once they've finished their immediate reporting on this, will they destroy these intercepts? Or will they keep them around for the same reason the NSA does: because, hey, they have them, and you never know if they might come in handy some day?

There's always been a tension inherent in Edward Snowden's exposure of the NSA's surveillance programs: Who gets to decide? You may think, as I do, that the government has repeatedly shown itself to be an unreliable judge of how much the public should know about its mass surveillance programs. But who should it be instead? Snowden? Glenn Greenwald? The Washington Post? Who elected them to make these decisions? Why should we trust their judgment?

It's not a question with a satisfying answer. Sometimes you just have to muddle along and, in this case, hope that the whistleblowers end up producing a net benefit to the public discourse. But this time we don't have to muddle. This is a very specific question, and we should all be interested in the answer. Do Greenwald and the Post plan to destroy these private communications once they're done with them? Or will they hold on to them forever, just like the NSA?

POSTSCRIPT: Yes, there's a difference here. On the one hand, we have the government, with its vast law-enforcement powers, holding onto massive and growing amounts of incidental surveillance. On the other we have a private actor with a small sample of this surveillance. We should legitimately be more concerned with possible abuses of power by the government, both generally, and in this case, very specifically. But that's a starting point, not the end of the conversation. Sanchez is still asking a good question.

Quote of the Day: Bizarro John Boehner Joins Twitter

| Tue Jul. 8, 2014 11:42 AM EDT

Steve Benen points me to the latest foray into social networking from Speaker John Boehner:

Democrats like to say they want to fix #ObamaCare, but where’s their plan? They don’t have one.

It's not worth belaboring the fact that this is epically dumb. What I'm curious about is what Boehner thinks this will accomplish. Who is it supposed to appeal to? To the tea party true believers, it's too weak to be effective. They want red meat. To liberals it's just laughable. To folks in the middle it's incomprehensible. To the media—which knows perfectly well that Dems have plenty of ideas and Republicans are hopelessly fractured over health care—it's idiotic.

So who's the audience for this?