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Economix Blog: Nancy Folbre: Conservatives and the Zombie Apocalypse

September 24, 2012 by Leave a Comment

Nancy Folbre, economist at the University of Massachusetts, Amherst.

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst. She recently edited and contributed to “For Love and Money: Care Provision in the United States.“

At first glance, Mitt Romney’s now-famous assertion that all those who don’t pay federal income taxes are dependent moochers seems like a dumb mistake. Why would he lump recipients of Social Security, veterans, students and low-wage earners — many of whom have voted Republican in the past — in with welfare recipients?

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Perhaps Mr. Romney was confident that his remarks were private, or perhaps he was pandering to his audience of potential donors. But he did follow a well-established conservative script, one of two competing horror-show narratives that increasingly dominate political discourse in this country.

The basic right-wing story line evokes zombie apocalypse: The shambling, diseased living dead — Obama Zombies — are threatening human civilization. A self-described neoconservative Web site features a parody of Shepard Fairey’s Obama campaign poster featuring the zombie in chief.

A forthcoming book by Nicholas Eberstadt is titled “A Nation of Takers: America’s Entitlement Epidemic.” Charles Sykes contends that we have become “A Nation of Moochers.”

The effort to elicit revulsion and moral outrage may be intended to counter the left-wing narrative of vampire threat, which warns of a small group of powerful, almost immortal beings who invest in blood funds, suck out the profits and stash them in Transylvanian tax shelters.

Both narratives reflect the enormous economic anxiety Americans feel in the aftermath of a financial crisis and ensuing recession. Zombies and vampires represent archetypal middle-class fears: the fear of being pulled down by the needy or stomped on by the powerful.

But the two fears are not perfectly parallel. Because zombies are generally considered incompetent, they don’t constitute a serious threat unless they mobilize in very large numbers; hence the pressure to exaggerate the size of the zombie class.

Also, in most cinematic accounts, zombies don’t suffer from moral failings; rather, they have contracted a virus or been exposed to some environmental toxin (for an extended literary treatment, see “Zombies Are Us: Essays on the Humanity of the Walking Dead”).

So who exactly are these zombies (or “takers” or “moochers”)?

We know who they are not.

They are not those who paid no federal income taxes last year, because many of these can point to a record of hard work.

They are not those stuck at the very bottom of the income distribution: When all taxes (rather than merely federal income taxes) are taken into consideration, the share of all taxes paid by different income groups corresponds pretty closely to their share of total income.

They are not those who get more in government benefits than they pay in taxes in a given year, because many of these families include children, elderly people, or adults who are eager to resume wage-earning as soon as they can find jobs but for now are unemployed.

Maybe the zombies are those likely to receive more in government benefits over their lifetime than they have paid in taxes. At the top of this list would be seriously injured military veterans in need of continuing care, along with those receiving costly Medicare-financed interventions in the last two months of their lives.

Alternatively, one might point to all those who have received means-tested public assistance. If so, Mr. Romney’s father George, who received public relief at one point, falls under suspicion.

If only we could use a simple blood test to determine who the real humans are. Would Mitt Romney be willing to release his own test results for past years?

But never mind. Blood tests could be dangerous when vampires are around.

Article source: http://economix.blogs.nytimes.com/2012/09/24/conservatives-and-the-zombie-apocalypse/?partner=rss&emc=rss

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Economix Blog: Uwe E. Reinhardt: The Debt of Medical Students

September 14, 2012 by Leave a Comment

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Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

In debates on health work force policy, it is frequently argued that medical education is a public good, because it benefits society as a whole.

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The implication is that tuition charges at medical schools should be zero or close to zero. Many nations in the industrialized world follow that policy, although they have also kept tuition low for most college students.

Most economists disagree with characterizing higher education as a public good. Only the individual receiving a professional education – including the M.D. degree — owns the human capital that the graduation documents certify to exist.

Medical graduates can use their human capital any way they wish. They can treat patients, do medical research or use their knowledge as business consultants to health-related companies or as financial analysts in the financial markets, as some of them do.

There may be some positive spillover for society as a whole from having this privately owned human capital produced, and these effects (called externalities by economists) might warrant some public subsidies toward the production of that human capital. That argument could be extended to many other forms of human capital, as well — e.g., engineers, scientists, nurses.

According to a fact sheet published by the American Association of Medical Colleges, annual tuition and fees at public medical schools in 2011-12 amounted to $30,753, and the total cost of attendance was $51,300. The comparable averages for private medical schools were $48,258 and $69,738. To most Americans, these will seem staggering amounts.

Which brings me to the sizable debt with which, almost uniquely in the world, American medical students now graduate. The association routinely collects data on these debts. A good summary of the most recent data, for 2010, can be found on the previously identified fact sheet, and I created this table from that source.

American Association of Medical Colleges

As the table shows, some of the students’ accumulated debt by time of graduation from medical school was incurred to finance a liberal arts undergraduate education. The $18,000 shown in the table is actually on the low side. According to the Project on Student Debt, college seniors who graduated in 2010 had an average debt of $25,250, with a range among campuses of $950 to $55,250 a student. Individual students at private colleges may have even larger debts. And debt collectors are doing a thriving business collecting these debts.

Amortization of the large debt accumulated by medical students will clearly take a bite of the income they will earn in medical practice. But at least there will be a sizable future income stream to absorb the hit. Many other college graduates have much smaller incomes or are in even direr straits.

The table below conveys a rough indication of what the amortization of medical-school debt might mean for individual students.

In this table I have assumed that the student modeled here had average debt of $161,300 upon graduation from medical school. From that debt I deducted $24,400, the amount to which $18,000 of debt upon graduation from a liberal arts college would grow in four years at a compound interest rate of 7.9 percent (that’s at the high end of the interest rate medical students are charged on debt). The remainder is debt related strictly to the medical education of the student.

I assume that after residency, the practicing physician has a starting net income (after practice costs) of $150,000 or $300,000, and that these incomes will grow at an annual compound growth rate of 3.5 percent over time. Physician incomes vary considerably across specialties and even within specialties.

To get a feel for the data, readers may want to look at several surveys of doctors’ pay.

According to the association’s fact sheet, students pay an interest rate of 6.8 percent on Stafford loans; for lower-income students, the rate is a subsidized 3.4 percent. For Direct Plus loans, students or their parents pay a rate of 7.9 percent, the rate I used in the table.

Finally, I assume two distinct amortization models. Under one, students pay back their debt with flat annual (or monthly) payments over 20 years. That payment is $13,840 a year. Under the alternative approach, the annual amortization payment rises in step with the assumed annual increase in physician income. The first annual payment in that approach is $10,659.

The data in the table represent these annual debt-amortization payments as a percentage of physician net income in years one, 10 and 20 of medical practice.

Clearly, these payments are a noticeable burden, even over 20 years. For amortization over 10 years, they would naturally be higher. On the other hand, the numbers would decline sharply with reductions in the interest rate charged. The table below illustrates the sensitivity of the first-year payment to interest rates and amortization horizon for the payment stream that increases in step with assumed increases in practice income.

The annual amortization payments would be particularly burdensome for primary care physicians, with their relatively lower incomes. That fact is a potential policy lever Congress might employ if it took seriously people’s lament that America is suffering from an acute shortage of primary care physicians.

I shall muse about that and other options in a future post.

Article source: http://economix.blogs.nytimes.com/2012/09/14/the-debt-of-medical-students/?partner=rss&emc=rss

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Today’s Economist: Simon Johnson: Who Built That?

September 6, 2012 by Leave a Comment

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Simon Johnson is Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and former chief economist at the International Monetary Fund. His books include “13 Bankers.”

Perhaps the biggest issue of this presidential election is the relationship between government and private business. President Obama recently offended some people by appearing to imply that private entrepreneurs did not build their companies without the help of others (although there is some debate about what he was really saying).

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Mitt Romney’s choice of Paul D. Ryan as vice presidential running mate is widely interpreted as signaling the further rise of the Tea Party movement within the Republican Party – with the implication that the private sector may soon be pushing back even more against the role of government.

For most of the last 200 years, national economic prosperity has been about creating and sustaining a symbiotic relationship between government and private business, including entrepreneurs who build businesses from scratch. This symbiosis was long a great strength of the United States, something it got right while other nations failed to do so, in various ways.

Is the partnership between government and business now really on the rocks? What would be the implications for longer-run economic growth of any such traumatic divorce?

To think about these issues, I suggest starting with “Why Nations Fail” by Daron Acemoglu and James Robinson, a sweeping treatise on political power and economic history. (I have worked with the authors on related issues, but I wasn’t involved in writing the book. I am using their material as a reference point throughout my new course this fall at the Massachusetts Institute of Technology, “Global Controversies.”)

Income per capita in 1750 was relatively similar around the world. There were some pockets of prosperity – imperial capitals and trading cities – but most people lived at roughly the same level of income (and lived about the same length of time). That changed dramatically in the hundred years after 1800; some countries charged ahead in terms of industrialization and broader economic development, while others lagged. (Lant Pritchett memorably labeled this phenomenon “Divergence, Big Time.”)

Since 1900, while average income levels have risen almost everywhere, there has been surprisingly little convergence in income per capita. Countries that were relatively rich in 1900 are, for the most part, relatively rich today. Most countries that were poor in 1900 have failed to catch up with the highest income levels today – with some notable exceptions in East Asia and for some countries with a great deal of oil.

In the Acemoglu-Robinson view, it was all about having a favorable head start – based on strong and fair rules of the game:

Countries such as Great Britain and the United States became rich because their citizens overthrew the elites who controlled power and created a society where political rights were much more broadly distributed, where the government was accountable and responsive to citizens, and where the great mass of people could take advantage of economic opportunities.

These were excellent conditions for innovation and private-sector investment. People who were not born wealthy were able to educate themselves and create their own enterprises. But the government also played a very helpful role, with investments in clean water and public health, developing public education and supporting the creation of transportation and communication networks.

Equality before the law also became an essential component of successful societies – for example, much more present in the United States than in Mexico.

At least in the 19th century, government cooperated closely with private business in the United States. In much of the world, this relationship has never worked well – and conditions for growth are consequently undermined. “Why Nations Fail” explores in great detail exactly when and why politicians choke business, how economic oligarchs capture and abuse political power and what happens when militaries become too powerful. It is sobering reading.

“Why Nations Fail” has been very successful, in part because the history appeals to people on both the right and the left of the political spectrum. To those on the right, economic development requires strong property rights. To those on the left, constraints on the power of elites are essential. Both views garner a great deal of support from the Acemoglu-Robinson view of how the United States, Western Europe and a few other places did so well.

The United States avoided the problems on which the book focuses, but nevertheless it now faces a major struggle regarding the nature of its society — and its future.

The 20th century brought a new and expanded role for government, putting into effect regulations that constrained what private business could do (starting with antitrust laws and food purity rules), providing various forms of social insurance (including old-age pensions) and increasing marginal tax rates (particularly on income). The modern federal government also operates a global military presence on a scale unimaginable to any American before 1941.

Unlike the populations of some countries, the American people have never reached a consensus over what was achieved and what was given up in the 1930s. In the United States, the rising role of the state produced a long-term backlash, culminating most recently in the form of a tax revolt (from the 1960s), a move to the right in the Republican Party (beginning with Ronald Reagan and running through Newt Gingrich directly to Mr. Ryan) and a deep-seated conviction that tax rates and government spending must be reduced (“starve the beast”).

The discussion of Mr. Ryan and his budget ideas is likely to become central to the election over the next two months – and this is entirely appropriate.

A powerful coalition has risen against the state. It sees modern government as abusive and as standing in the way of economic recovery and growth. There is a strong urge to undo the reforms of the 1930s and roll back government at all levels. The economist Arthur Laffer spoke for many others when he said, “Government spending doesn’t create jobs, it destroys jobs.”

In truth, we all built the modern American economy. This certainly includes individuals taking responsibility for themselves, becoming more educated and working hard to develop their own companies. But the government also played a constructive role.

Can our political system reach a reasonable agreement on how to divide the benefits and share the costs? In “White House Burning,” James Kwak and I proposed one way to do this – phasing in a fiscal adjustment based on the principle that revenue should return to where it was before the Bush tax cuts. Mr. Ryan is proposing a very different vision: phasing out the nonmilitary part of federal government.

In my assessment last month, I found that anything close to Mr. Ryan’s version would be too extreme.

Mr. Ryan wants to strengthen the private sector and get government out of the way. In my reading of Professors Acemoglu and Robinson, Mr. Ryan’s fiscal intentions would destroy the positive role of government in modern America — throwing the baby out with the bath water. This would not be good for continued private-sector development, on which we all depend.

Article source: http://economix.blogs.nytimes.com/2012/09/06/who-built-that/?partner=rss&emc=rss

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Today’s Economist: Casey B. Mulligan: Social Insurance and Layoffs

September 5, 2012 by Leave a Comment

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Casey B. Mulligan is an economics professor at the University of Chicago.

Unemployment insurance and other types of social insurance subsidize job separations and thereby result in too many layoffs and too few people employed.

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A variety of programs help workers after they leave a job and do not start a new one, depending on the circumstances of the job separation.

Unemployment insurance is often available when the worker was laid off and continues to look for work. Disability insurance is available when a worker’s health makes it too difficult to remain on the job. Social Security’s old-age insurance program provides income for elderly people after they leave their jobs.

Layoffs, disability events and retirements have some differences, of course, which is why each type of job separation has a separate insurance program. But in each case, a working relationship between an employer and an employee has been terminated, and the worker has not started a new one with, say, different working conditions or a different rate of pay.

In their analyses of disability and old-age insurance, economists have found that insurance reduces the cost of job separations and thereby increases their numbers, because the insurance helps replace the income and production that is lost when the worker stops working.

The prospect of the insurance payments gives employers less reason to change the nature of a job to encourage a disabled or elderly employee to remain at work and gives employees less reason to accept changes in working conditions or pay that would make it easier for employers to retain them.

David Autor of the Massachusetts Institute of Technology has studied the United States federal disability-insurance program and finds that it “provides no incentive to employers to implement cost-effective accommodations that would enable disabled employees to remain on the job.”

The Congressional Budget Office explains further about disability insurance that “because the D.I. program is funded through a flat-rate payroll tax on employers and employees, employers do not bear the costs associated with a disabled worker who stops working and becomes a beneficiary in the D.I. program.”

Note that disability benefits are paid to employees, not employers. Nevertheless Professor Autor and other economists conclude that the benefits affect employer behavior because the employment relationship is exactly that: a relationship between employer and employee.

If an employee has better, or less bad, options outside the relationship, then the employer will find the employee more expensive to keep. Disability and other forms of social insurance increase the income employees can receive outside the job and thereby make employees more expensive from an employer’s point of view.

The economists Jonathan Gruber and David Wise have found that Social Security provisions “provide enormous incentive to leave the labor force early.” Just like disability insurance, Social Security provisions can shift some of the burden of job separations from the private sector to the public insurance programs and thereby give the private sector too little incentive to prevent or delay the separations.

Employers sometimes experience reductions in demand from their customers, as auto manufacturers and home builders did early in the recent recession. One way they react is to lay off part of their work forces. But they could also adapt to less demand by work-sharing, reducing prices charged their customers (or increasing those prices less than the general rate of inflation) or reducing wages.

Smart employers recognize that one of these adjustments — layoffs — brings forth help from the government through its safety-net programs (on behalf of employees); the other adjustments do not. If the safety net were less generous, there would be fewer layoffs during a recession, because employers would adjust less with layoffs and more in other ways.

(State unemployment insurance programs are, and have been, “experience rated” in the sense that employers sometimes find their payroll taxes increased for each employee they dismiss. However, the experience rating is imperfect; some employers are already at the maximum tax rate and further layoffs would not increase it. More important, the effect of experience rating on employer costs of layoffs was present even before the recession. What’s new since 2008 are the federal extended and emergency unemployment programs that are not experience-rated, thereby adding to the benefits an unemployed person can expect to receive without adding to the taxes levied on his former employer).

Thus, even if it were true that the unemployed completely ignored the safety net’s generosity in their decisions to seek and accept jobs, the safety net would still increase unemployment during a recession by increasing layoffs.

Yet economists have recently forgotten this important connection between unemployment insurance and the number of people employed. The C.B.O. has looked at the economic effects of unemployment insurance and noted that extending unemployment benefits would “reduce the intensity of some workers’ efforts to search for a new job because the higher benefits would lessen the hardship of being unemployed.” But the C.B.O. concluded that “the net impact on the unemployment rate from some workers’ reduced efforts to find a job would be slight.”

Although it looks at incentives to avoid job separations in its consideration of disability insurance, the C.B.O. makes no mention of the same incentives in its analysis of unemployment insurance and consequently is premature in its rejection of the basic economic proposition that paying people for not working will reduce the number of people who work.

Article source: http://economix.blogs.nytimes.com/2012/09/05/social-insurance-and-layoffs/?partner=rss&emc=rss

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Economix Blog: Nancy Folbre: Just Try Harder

January 9, 2012 by Leave a Comment

Nancy Folbre, economist at the University of Massachusetts, Amherst.

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

“We try harder” proved a famously effective advertising slogan. Effort is important. Good incentives can elicit greater effort.

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But incentives sometimes backfire. And too much emphasis on them can lead to the presumption that all our failures result primarily from lack of willpower.

One commenter on my last blog post asserted that the economy would recover if middle-class people “would work harder, spend less, kill their televisions, stop drinking alcohol, stop eating sugary fat foods, exercise an hour a day and stop letting their rotten little brats run wild.” Good suggestions, in my opinion, but not substitutes for better economic policies.

In “The World Is Flat,” Thomas Friedman often sounds like a football coach, exhorting Americans to be more competitive. He tells his daughters, “Girls, finish your homework – people in China and India are starving for your jobs.” Again, good advice, but I doubt it will end the offshoring of American manufacturing employment.

Do people work harder if their pay is linked to specific measures of performance? Sometimes. But the psychologist Paul Marciano summarizes a number of reasons that  carrots and sticks often fail, including the resentment workers feel when their performance has been mismeasured.

The debate over performance pay for teachers raises fears that it will overemphasize standardized test scores or undermine collaboration among teachers, hurting students more than helping them.

As the compelling “Freakonomics” documentary shows, experimental efforts to improve student performance by paying them for high grades have shown only small positive effects so far. Some of the most poignant moments in the film capture a student who says he will try harder but fails.

Many experimental studies have offered people financial incentives to stay on a diet and lose weight. Incentives tend to work in the short run, but most people regain the weight they have lost. In a recent New York Times article, Tara Parker-Pope persuasively asserts that willpower is not their primary problem: physiological changes make significant permanent weight loss extremely difficult to achieve.

Why not stigmatize fat people anyway, if that might help them lose weight? Likewise, why not blame poor people for their own poverty and the unemployed for their own joblessness? Even if they don’t deserve the blame, it could help them try harder.

The economists Roland Bénebou and Jean Tirole come close to making this argument when they assert that a delusional belief that people always get what they deserve can be economically advantageous because it will motivate greater effort.

But as Richard Sennett and Jonathan Cobb pointed out long ago in “The Hidden Injuries of Class,” blaming people for every aspect of their own failure can demoralize and demotivate them. That kind of blame also discourages efforts to collaborate with others to make changes that no individual can achieve alone.

If we simply assume that the world is just, then there’s no need to change it.

Good incentives should encourage people not just to try harder but also to try smarter; to improve their social environment rather than their just their own psyche.

Some fascinating research shows how “commitment contracts” enable people to specify rewards or punishments for meeting (or not meeting) their goals, and to recruit friends or others as enforcers.

Ian Ayres, a law professor who developed this concept in his recent book “Carrots and Sticks,” takes it well beyond mere self-improvement. A commentary he recently wrote with the economist Aaron Edlin, on the Op-Ed page of The New York Times, makes a strong case for a public commitment to tax – and thereby discourage – further increases in income inequality, on the grounds that it undermines democracy.

I believe that inequality also undermines effort, by making it more difficult for those at the bottom to move up. Americans now enjoy less economic mobility than their counterparts in other affluent countries.

Improving economic fairness — now there’s a problem economists should try harder to solve.

Article source: http://feeds.nytimes.com/click.phdo?i=c1151dfa1951db5bf5d5409d8cafc27e

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Economix Blog: Uwe E. Reinhardt: What Price Pluralism in Health Insurance?

January 6, 2012 by Leave a Comment

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Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

“Texas Consumer Health Assistance Program to Close After Losing Federal Funding” was the headline of an article by Sarah Kliff in the Jan. 1 issue of The Washington Post.

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The Texas Consumer Health Assistance Program of the Texas Department of Insurance was federally funded in late 2010 as part of the Patient Protection and Affordable Care Act of March 23, 2010, now widely known as the Affordable Care Act, or simply the A.C.A. — which set aside a total of $30 million for such programs nationwide.

Texas received a $2.8 million grant in late 2010 to start and operate the program. It had nine employees to staff hot lines and traverse the state to make Texans without health insurance aware of their options. More than 6,000 callers were reportedly served by the program during the year.

As it turned out, the A.C.A. authorized this program but left its financing to annual appropriations by Congress. When Congress failed last fall to agree on a budget for the 2012 fiscal year, federal financing of the program dried up, and Texas will terminate it.

If the Texas program actually cost $2.8 million last year alone – and we cannot be sure it did — that would amount to about $311,111 per employee and about $460 or so per client served.

Why should it cost that much in consulting fees just to help Americans sort through the maze of private health-insurance offerings? To be sure, the program included start-up costs, and it assisted enrollees not only with information on insurance options but also with complaints about insurers.

Furthermore, it may, in effect, have been aimed mainly at individuals and families with poor or no electronic connectivity and little understanding of health insurance. Some of the program’s outreach literature even seems to have been aimed at small children, which seems odd.

One explanation of the costs, of course, may be that this was a government program and is ipso facto wasteful. For many Americans, that statement seems to be an axiom rather than a hypothesis.

But as I mentioned in an earlier post, the consulting services of private insurance brokers in the individual- and small-group market do not come cheaply, either. Depending on the commission rate as a percentage of the premium — which can range from 2 percent to 10 percent, and, on occasion, even more — and the size of the premium, these private consulting services can cost as much as those of the Texas program or more.

So to anyone familiar with other nations that rely mainly or wholly on private health insurers — e.g., Germany, the Netherlands, Switzerland — the question remains, why is it so much more difficult and expensive, in time and money, to choose among health-insurance options in America?

All residents in Switzerland, for example, are mandated to procure health-insurance coverage for a federally specified benefit package. The system relies fully on 62 private health-insurance companies that compete for enrollees on a well-organized and government-regulated, federal, electronic health-insurance exchange for individually purchased health insurance. The smallest company, the Krankenkasse of the village Zeneggen, has only 170 insured people; the largest, CSS Krankenversicherer, insures 858,000.

Premium shopping among insurers is easy, because the standard benefit package is common to all. Prospective enrollees, however, can choose from several annual deductibles ranging from a stipulated minimum of 300 Swiss francs (about $318) to a maximum of 2,500 Swiss francs (about $2,654). Furthermore, they can purchase supplemental insurance on top of the basic package, mainly for superior amenities.

It can be doubted that many people in Switzerland need to bear the high time and money costs Americans must bear in choosing health-insurance coverage in the market for individually purchased coverage. Public and private Web sites in Switzerland help prospective enrollees easily navigate the national insurance exchange with user-friendly information, including calculated premium differentials between one’s current insurer and competitors.

Readers may want to play around with a hypothetical choice on the English version of the private Web site Comparis.ch. Enter, for example, the postal code 3000 for the city of Bern and make yourself born in, say, 1965. (You will notice, however, premiums do not vary by age.)

The closest counterpart in the United States is probably the Web site of the Federal Employee Benefit Program operated by the Office of Personnel Management for federal employees and members of Congress. It is well constructed, but readers who play with it will realize how complicated choice is in the United States, even on one of the best-organized electronic exchanges. One has to examine the fine print of every offering.

Another good government Web site is offered by the Department of Health and Human Services for the general public. It is very helpful in guiding families toward potential solutions for problems they encounter in the health-insurance market, but again illustrates the complexity of choices Americans must make.

There are numerous other such public or private Web sites of this sort. A fairly well-established one in the private sector is eHealthInsurance.com.

Finally, the personnel department of every large American employer operates for its employees an organized health-insurance exchange regulated by the company, typically an electronic one. Although these Web sites are user friendly, the choices they offer are usually not simple.

Furthermore, how much employer-operated insurance exchanges cost per employee or as a percentage of the premium is not well known, because those costs would be part of the cost of administering all benefits, not only health insurance, which in turn is part of the overall cost of the personnel department.

Evidently there is a trade-off between the degree of uniformity in a health-insurance system and the time and money costs of operating such a system.

Choice among private health insurers in Germany, the Netherlands and Switzerland is straightforward and relatively inexpensive in terms of time and money, because price comparisons are based on a common benefit package. More customized coverage can be purchased, but only in the form of supplements to the common package.

Choice in the United States is expensive, because it requires prospective enrollees to do near-Talmudic studies of the fine print of each insurer’s offerings — many times multiple distinct offerings per insurer.

Although the A.C.A. originally sought to prescribe a national common benefits package, defining that package has now been delegated to the states. It is anyone’s guess how much pluralism there will be in “basic benefit packages” under whatever segments of the A.C.A. actually survive to implementation.

One must assume that Americans view this pluralism as worth the extra transaction costs they bear. Apparently, Europeans think otherwise.

Article source: http://feeds.nytimes.com/click.phdo?i=93954578c1db49bf440b38f568018ed7

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Economix Blog: Simon Johnson: Ron Paul and the Banks

January 5, 2012 by Leave a Comment

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Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”

We should take Ron Paul seriously. The Texas congressman had an impressive showing in the Iowa caucuses on Tuesday and his poll numbers elsewhere are resilient – he is running a strong third among Republicans nationally and is currently second in New Hampshire polling. He may well become the Republican candidate with populist momentum and energy in the weeks ahead.

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Mr. Paul also has a clearly articulated view on the American banking system, laid out forcefully in his 2009 book, “End the Fed.” This book and its bottom-line recommendation that the United States should return to the gold standard – and abolish the Federal Reserve System – tend to be dismissed out of hand by many. That’s a mistake, because Mr. Paul makes many sensible and well-informed points.

But there is a curious disconnect between his diagnosis and his proposed cure, and this disconnect tells us a great deal about why this version of populism from the right is unlikely to make much progress in its current form.

There is much that is thoughtful in Mr. Paul’s book, including statements like this (on Page 18):

Just so that we are clear: the modern system of money and banking is not a free-market system. It is a system that is half socialized – propped up by the government – and one that could never be sustained as it is in a clean market environment.

Mr. Paul is also broadly correct that the Federal Reserve has become, in part, a key mechanism through which large banks are rescued from their own folly, so that their management gets the upside when things go well and the realization of any downside risks is shoved onto other people.

If you don’t like this characterization of the American system, turn your attention to Europe and the euro zone – where the European Central Bank is busy propping up banks with “liquidity” (in the form of three-year loans), in part hoping that these financial institutions can, in turn, support the government bond market.

There are no Ron Paul-type populists in Europe – at least I have never come across a mainstream politician there wanting to abolish any central bank. But I predict that related views will pick up European adherents in the months ahead — for example, as people in Germany increasingly worry about the actions of the European Central Bank and want to go back to some version of their own Bundesbank, which was very careful about not creating inflation.

Mr. Paul represents an important strand of American libertarian thinking, seeing the root of all financial evil in the role of the government – and tracing this back to what he sees as deviations from the Constitution, made possible by the Supreme Court (beginning with McCulloch v. Maryland in 1819; I recommend “Aggressive Nationalism: McCulloch v. Maryland and the Foundation of Federal Authority in the Young Republic,” by Richard E. Ellis, if you’d like to read more on that key episode).

Mr. Paul’s argument goes too far in this direction, however, including statements like “the Supreme Court has never been a friend of sound money and has rarely been a protector of the Constitution” (on Page 168). His book would also be more convincing if it relied a little less exclusively on sources produced by a single publisher, the Ludwig von Mises Institute.

The gold standard is, to Mr. Paul, a panacea, because it would restrict the role of the government and what a central bank could do. In fact, in his version of the gold standard – which is not the one that generally prevailed – there is no role for a central bank whatsoever.

But Mr. Paul’s book also acknowledges the imbalance of power within the financial system that prevailed at the end of the 19th century. Wall Street financiers, like J.P. Morgan, were among the most powerful Americans of their day. In the crisis of 1907, it was Morgan who essentially decided which financial institutions would be saved and who must go to the wolves.

Would abolishing the Fed really create a paradise for entrepreneurial banking start-ups, enabling them to challenge and overthrow the megabanks?

Or would it just concentrate even more power in the hands of the largest financial players? It is hard to find a moment of greater inequality of power than that of the Gilded Age of the late 1800s – with the gold standard and the associated credit system firmly working to the advantage of J.P. Morgan and his colleagues.

Mr. Paul insists that “in a competitive and free system, deposits would not be unsafe; any that were not paid back that were promised would fall under the laws of protection against fraud” (Page 27).

Again, this seems to mistake the true nature of power both in modern American society and in a world without any limit on the scale and nature of banks. Laws and rules do not drop from the sky; they are shaped in minute detail by an intense and very expensive lobbying process. (For a prominent and credible example, see Jeff Connaughton’s latest piece in The Huffington Post on how slow the Securities and Exchange Commission has been to deal with concerns about high-frequency trading.)

There is nothing on Mr. Paul’s campaign Web site about breaking the size and power of the big banks that now predominate. “End the Fed” is also frustratingly evasive on this issue.

Mr. Paul should address this issue head-on — for example, by confronting the very specific and credible proposals made by Jon Huntsman, who would force the biggest banks to break themselves up. The only way to restore the market is to compel the most powerful players to become smaller.

Ending the Fed – even if that were possible or desirable – would not end the problem of too-big-to-fail banks. The only credible way to threaten not to bail them out is to insist that even the largest bank is not big enough to bring down the financial system.

Article source: http://feeds.nytimes.com/click.phdo?i=e083abec222bfbab3357da0b4a7283e0

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Economix Blog: Nancy Folbre: Feminism’s Uneven Success

December 19, 2011 by Leave a Comment

Census Bureau, Maternity Leave and Employment Patterns of First-Time Mothers: 1961-2008.DESCRIPTION

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

In the United States, as elsewhere, feminism could be characterized as the most successful social movement of the 20th century. Yet, perhaps because of its uneven impact, it seems to be losing momentum.

Today’s Economist

Perspectives from expert contributors.

Cultural and political mobilization around women’s rights led to important legal gains, including the right to vote, prohibitions on overt discrimination and access to contraception. Women increased their participation in paid employment and political office, and many climbed into professional and managerial jobs.

Over the last 20 years, however, the pace of change in attitudes, labor force participation and relative earnings has slowed, leading to speculation about the “end of the gender revolution.”

In my view, this revolution has not ended. But it has, like most revolutions, fallen far short of its ideals. In 2010, women’s earnings, adjusted for factors that could affect pay – like age, race, education, number of children in the household and part-time status – amounted to about 86 percent of men’s.

Perhaps movement toward equality is necessarily slow. Some people seem to worry that men won’t want to marry women who are not their subordinates. And many women seem to prefer predominantly female occupations, even though they pay less.

Gender inequality in earnings strongly reflects the penalty imposed on caregivers who take time out of paid employment. Median full-time salaries of young, unmarried, childless women under 30 living in cities are higher than those of their male counterparts.

Demographic differences among women now have a large class dimension. A substantial share of women with a college degree – 23 percent of those ages 40 to 44 in 2008 – remain childless. Yet the college educated are now more likely than others to marry, a factor that contributes to their higher family income. Married fathers are more likely than others to live with their children and contribute directly to their care.

Class and racial and ethnic differences among women have intensified over time. The higher earnings of college-educated mothers make it possible for them to purchase child care and help with housework (typically performed by low-wage women workers). A recent paper by the economists Delia Furtado and Heinrich Hock shows that the number of low-skill immigrants living in a large city reduces the tradeoff between employment and fertility for women college graduates.

Outsourcing of care responsibilities can have many positive effects, but it reduces the potential for cross-class gender coalitions. Emphasis on changes in women’s average or median earnings relative to men often conceals growing inequality among women.

As Leslie McCall, a Northwestern University sociologist, describes recent trends, “Absolute gains among women as a whole, and visible absolute gains among more highly educated women in particular, came at the expense of the worsening situation of low-skilled women, whose real wages have been falling.”

A college education often provides access to relatively flexible jobs. As Jennifer Cheeseman Day of the Census Bureau explains in this webinar recently orchestrated by the Population Association of America, women in professional-managerial occupations are more likely than other working women to reduce their hours of employment when they have a preschool child, a factor that can help them achieve better work/family balance.

Women in less remunerative occupations are often forced to choose between making do with long hours or finding part-time jobs that pay even more poorly and don’t offer benefits.

In the same webinar, I discussed the chart above, showing that employed college-educated women are now more likely than they once were to enjoy some paid leave from employment upon the birth of their first child – 66 percent in 2006-8 compared with 27 percent in 1971-5. Employed mothers without a high school degree, by contrast, have remained stuck at 18 percent.

As the webinar also points out, paid family leave is a universal entitlement in virtually all other affluent countries, where child care and early childhood education are also subsidized more generously.

Demographic and economic differences among both women and men in the United States make it difficult to mobilize support for such policies here. And in the absence of such policies, inequality is likely to intensify.

The gender revolution didn’t cause this problem, but it is surely being hindered by it.

Article source: http://feeds.nytimes.com/click.phdo?i=cf213db6593af2da223b9a23c5e719ea

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Economix Blog: Casey B. Mulligan: Bankers, Too, Cast a Safety Net

November 30, 2011 by Leave a Comment

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Casey B. Mulligan is an economics professor at the University of Chicago.

The combination of housing market events and the profit motive of mortgage lenders turned trillions of dollars of household debt into a huge safety net.

Today’s Economist

Perspectives from expert contributors.

Household debt had been increasing during the 1980s and 1990s, but the rate of increase was extraordinary in the years leading up to the recession. By 2007, household sector debt had reached 114 percent of the nation’s personal income – more than $14 trillion. The change was almost entirely due to accumulation of home mortgage debt.

Normally, home mortgages are fully secured by a residential property, and when a homeowner fails to make the scheduled payments on time, the lender can seize the property and sell it to recover its principal, interest and fees. When the lender has this valuable foreclosure option, borrowers overwhelming either make their home mortgage payments on time or sell their property in an orderly fashion to obtain the money to repay the mortgage lender, even in cases when the homeowner is unemployed.

When residential property values plummeted in 2008 and 2009, a number of residential properties were suddenly “under water” — worth less than the mortgages they secured. In those cases, the lender’s foreclosure option was no longer valuable – selling the property would be likely to yield too little money to cover principal, let alone interest and fees.

Lenders needed a way to estimate which borrowers would still pay in full and a way for other borrowers to work out a mortgage modification that would give them an incentive to pay at least a bit more than their homes were worth.

Naturally, a borrower’s income is a factor considered – borrowers with high income can be expected to repay more than borrowers with low income. Thus, a partial solution to the lenders’ collection problem is to insist that high-income borrowers pay more of the mortgage amount due and allow at least some low-income borrowers to pay less.

From this perspective, the lenders’ desire to maximize debt collections (after the collapse of residential real estate values) causes them to create a kind of safety net program that gives low-income people more help with their housing expenses (much the way the federal food stamp program gives low-income people more help with their food expenses) in the form of modified mortgage payments.

To quantify the size of the loan modification safety net and its changes over time, I estimate the amounts that “home retention actions” (as the federal government calls these mortgage modifications that allows people to stay in their homes) actually changed mortgage payments from the original mortgage contract, which specified only payment in full or foreclosure.

To estimate those amounts for 2008-10, I first measured the number of residential properties in each quarter receiving loan modifications, lender permission for short sale or lender permission for deed-in-lieu of foreclosure.

Next, I multiplied the number of transactions by a $20,319 average value of each loan modification (a typical modification reduced monthly payments by $400 for a minimum of 60 months; at an annual discount rate of 7 percent, that’s a present value of $20,319). I do not have data on the number of home retention actions for the years 2006 and 2007, but I assume the dollar value of discharges those years were, as a proportion to discharges in 2008, the same as total mortgage loan discharges by commercial banks.

Because the home retention actions are necessary primarily when homes are worth less than the mortgages they secure, the amount discharged by home retention actions is much less in 2006 and 2007 when residential property values were still high. During 2010, mortgage lenders discharged more than $70 billion of mortgage debt through home retention actions. Seventy billion dollars for one year is small in comparison to the total amount that homeowners were under water but is more than the spending by the entire food stamp program for that year.

The last row of the table displays discharges on other consumer loans, such as credit card debt. Those discharges are smoother over time because they are not directly tied to the housing cycle but still totaled more than $70 billion in 2010. The combination of discharges of other consumer loans and discharges of home mortgages by home retention actions was almost $150 billion in 2010, which exceeds the peak spending for entire unemployment insurance system.

Bankers deserve a lot of blame for getting us into this mess, have dipped far too deeply into the United States Treasury to help themselves, and have been far too slow to modify mortgages. For these reasons, it’s remarkable that their own selfish pursuits have forced them to create a safety net of sorts that rivals the amounts spent by public sector safety net programs.

Article source: http://feeds.nytimes.com/click.phdo?i=f0a9e27a51ba4d0f9f582cf3a628574f

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