David Brooks Likes The Voucher Approach To Medicare

The the surprise of nobody, David Brooks tells us that a market based approach to cutting Medicare costs is better than the Obama plan.  His argument is simple and wrong.  Its simple because he assumes that Obama's ACA plan will not reduce costs.  In that case, we must try something else.  He admits that we don't know whether the voucher plan will work, but it is better than doing nothing. Moreover, despite the fact that most healthcare economists do not believe that the voucher plan will cut costs for beneficiaries, his faith in a market based approach is undeterred.  We already have the kind of plan that he wants for Medicare in the US.  Businesses who provide healthcare coverage, and individuals who purchase their own plans, can choose among a number of insurance companies that compete for their business.  Businesses are able to negotiate lower premiums than individuals, but their premiums continue to rise faster than inflation.  Individuals, with little negotiating power, and less information, do even worse.  Why should we expect that seniors would be better served by competition among insurance companies, than businesses or individuals are able get today from competing insurance providers?  Moreover, government would still be involved in the "market".  Government would set the value for the vouchers, and its decision will determine the level of benefits that seniors will receive from insurance companies that have demonstrated an inability to contain healthcare provider price inflation.  Seniors will receive fewer benefits, or they will have to pay the cost for price inflation.  Insurance companies will also be less constrained than they are by the ACA.  It is in their best interest to offer insurance to the healthiest candidates and reject those most in need of healthcare.  Around 25% of Medicare beneficiaries account for 80% of Medicare's payments.

The summarize David Brooks' astute analysis of almost every problem, we should favor market outcomes over government determined outcomes.  Therefore, we should vote Republican, even if they only like market outcomes that work to the advantage of their supporters. 

The Truth About Jobs And Conspiracy Theories From The Right Wing

Paul Krugman argues that the recent jobs report contained good news.  Unemployment fell below 8% to 7.8%.  On the other hand, this was bad news for those who want to get replace Obama with a more friendly face.  Many of them responded to the good news by claiming that the BLS fudged the data in order to help Obama.  The right wing in the US has a tendency to invoke conspiracy theories to explain facts that do not conform to their belief system.  The GOP has done whatever it could to derail government efforts to deal with the recession in order to gain political advantage.  We got a weak fiscal stimulus as a result and the Federal Reserve has had use monetary policy, without the added advantage of fiscal stimulus.  That, of course, led to conspiracy theories about the Fed as well as political threats to the Fed's independence.

Cost Disease And Our False Healthcare Problem

This is a review of a book that makes a paradoxical claim.  It argues that the cost of healthcare, education, handcrafted products etc. are on the rise because they are labor intensive.  It is hard to provide these services with fewer people.  On the other hand, we will always be able to afford them because we will have to work fewer hours to pay for them.  That is because of rapidly increasing productivity in producing things with the assistance of machines.  The biggest problems that we face comes from producing products like fossil fuel devouring vehicles and weapons which continually fall in cost as a result of rising productivity.  This causes us to destroy the environment and to engage in continual warfare.

This is an interesting argument because rising productivity can be our friend rather than our enemy.  It depends upon how we spread the benefits from rising productivity.  If the benefits are divided between labor and capital, we can afford to purchase expensive services that make our lives worthwhile.  We will also employ more people in providing the services that we desire.  The composition of GDP will shift from producing more things that we can get rid of with a great benefit, and consuming services that really make our lives better. 

One of the problems that we suffer from today is cost disease.  Our politicians tell us that we can't afford things like healthcare that make our lives worthwhile.  We can afford healthcare, education and other desirable services as long as we spread the benefits from productivity more liberally.

Obama's Debate Performance And The US Ryder Cup Team's Loss

Tom Friedman made several good observations on the presidential debate.  Obama's campaign, like the US Ryder Cup Team, became over-confident and it has adopted a loss avoidance strategy, instead of playing to win big.  The president was also unprepared for the new Romney that he encountered in the debate.  Romney has adopted a new persona as a center right candidate.  He is now the defender of the middle class.  Obama can no longer assume that Romney will direct his messaging to the Tea Party.  He knows who they will vote for.

Romney Surprised Obama By Featuring Analysis Of His Tax Plan By Conservative Think Tank

Mitt Romney is getting a little help from his friends as the election campaign draws to a close.  Conservatives have funded numerous think tanks to assist them in opinion making.  An analysis of his tax plan by the conservative American Enterprise Institute helped him in his debate with Obama and it is being featured in his current ad campaign.  The AEI analysis of his tax plan is described as a non-partisan analysis that disproves claims made by two other studies that Obama used to argue against Romney's tax plan.  The huge investments made by conservatives to fund scores of "non-partisan "think tanks" has been a good investment.  They outnumber progressive think tanks by a wide margin.

Overleverage, And Faulty Incentive System Caused Financial Crisis

This article was written in response to an article by Andy Haldane who argued the central bank dependence on DSGE models contributed to the financial crisis.  The use of leverage by banks expanded rapidly during the crisis and the failure of regulators to deal with increasing leverage was a more important problem.  It may be more important to examine the political economy of deregulation and the incentive systems in banks that rewarded bankers for achieving short term financial targets.

There are problems with central bank reliance on DSGE models which view credit expansion as exogenous to the real economy.  I tend to agree with Mainly Macro, however, that deregulation and the use of leverage to maximize short term performance and bonus's was more important.  There was a failure of corporate governance throughout the global banking system.  Little has been done to reduce the threat of future financial crises from poor corporate governance.  They still operate under an asymmetric incentive system that provides huge rewards for short term performance, and weak penalties for management risk taking on the downside.

Questions That Should, But Wont Be Asked At Presidential Debate

Political candidates prefer to talk about vague generalities, and they are usually supported in this effort by the press.  It will be interesting to see whether the presidential debate is about "zingers" without substance, or whether the candidates will pressed to provide answers to important questions like these suggested by Robert Reich.  If they anticipated this kind of questioning, they probably would not agree to a public debate.  The debates usually conform to ground rules that are agreed to by both campaigns.