Monthly Archives: February 2014

Obamacare Failure

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Some random thoughts on President Barack Obama’s latest…delay…of inconvenient parts of his health welfare law:

House Speaker John Boehner (R, OH):

[O]nce again, the president is rewriting law on a whim.  If the administration doesn’t believe employers can manage the burden of the law, how can struggling families be expected to?

This latest rewrite, now being carried out by the Secretary of the Treasury Jack Lew in President Barack Obama’s name, is as lawless as Obama’s previous rewrites.  No authority to rewrite, or to refuse to enforce parts of, the Obamacare law or any other law exists in the Executive Branch.  Law writing and changing—both!—are the sole prerogative of the people’s elected representatives in the Congress.  What Obama is doing isn’t a rule adjustment in order to better effect the law, it’s a plain and simple refusal to enforce the law (under the guise of rewriting it), as the President and his Treasury Secretary are sworn to do.  And it was done solely for Democratic Party electoral gain; the move has nothing to do with what’s good for American businesses, and not at all with anything related to what’s good for American citizens.

Incidentally, the Treasurer’s oath of office is this (the President’s oath of office is in Art II, Section 1 of the Constitution):

I (name), do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter.  So help me God.

“Support and defend the Constitution of the United States” means, in this context, that the Treasurer is sworn to honor the separation of powers delineated in Articles I and II of the Constitution, which means in turn, he must do his part to enforce the law as it’s written; he cannot (as opposed to may not) rewrite it at convenience of for any other purpose.

I’m unsympathetic toward the insurers here.  Insurance company management wanted Obamacare, and they lobbied hard for it.  Now they’re reaping what they sowed, in terms of unbalanced costs.  The insurance companies’ management has been immoral and cowardly: they wanted to get into bed with government and take advantage of personal relationships with government bureaucrats and politicians so they could freeload off their fellow citizens and their tax money.  Instead, they should have chosen the path of being responsible fellow citizens themselves, taking advantage of their relationships with customers through free market.

As advertised, this…rewrite…is a temporary change, and the law will resume its full force in 2017 (conveniently after the next two elections, by the way).  As a temporary measure, it can have no effect on our economy, on business’ decisions as they operate in our economy, or on hiring (or not hiring).  This just extends the uncertainty, and it continues the drag on our economy and on Americans’ prosperity.  Any high school student of economics understands this, and so do Obama, Lew, and their Progressive fellows in Congress.

Again: this is a move purely for cynical Party gain, and nothing else at all.

Is Government Intervention in the Market Counterproductive?

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There have been many iterations of the boom and bust cycles inherent in a free market economy; standing out in national memory are the series of recessions and panics/depressions through the 19th and 20th centuries and the early parts of the current century in the US.

What’s the history of those cycles, though, in the context of government intervention?  In the 19th and early 20th centuries, there wasn’t any government intervention to speak of.  Every one of those bust periods ran their natural course because government had no means of intervening, and that was deliberate.  The worst of those cycles, the panics, were, to be sure sharp and deep.  But they also generally were short-lived (frequently one or two years, although the Panic of 1837 lasted seven years), as the free market recovered on its own: people saw those periods as opportunities—the creative destruction of which some economists speak.  Every time, too, our economy came out of those periods of creative destruction stronger than it was when it entered them.

A couple of the more extreme examples illustrate.  The Panic of 1907 was cut short by the intervention of a banker, JP Morgan, who put his own money on the line to rebuild confidence in the banking system of the time.  (Imagine that happening today: 100 years ago, wealth was concentrated at the top sufficiently to enable one man to do this.  Today, the blatherings of the Liberal political class to the contrary, no one man or small group of men has the concentrated wealth to achieve such a thing.)

The Depression of 1920-1921 (remember that one?  I didn’t think so) lasted all of 18 months, and the Federal government’s intervention was limited to an early instance of—small—unemployment insurance payments.

Contrast that with the boom/bust cycles since the early- mid-20th centuries.  Franklin Roosevelt had the Federal government intervene massively in the Great Depression, instigating farm price controls, labor price floors, relocation of failed farmers (including onto functioning farms worked by black farmers, but that’s for a different post), and so on.  In fact, his most serious intervention, those price controls, occurred just as the economy was beginning to recover on its own, and that intervention snuffed out the recovery.

There’s more.  The long recession and stagflation of the Nixon through Carter years was exacerbated by Federally implemented price controls and rationing of key commodities like oil.

The Panic of 2008, although nominally over in 2009, still is having its depressive effects on economic and employment growth as a direct result of Federal government intervention: “stimulus” spending of trillions of dollars, regulation of commodity production (particularly coal, oil, and natural gas), and a vast expansion of the national welfare program.

Government intervention isn’t a neutral failure of no effect; it’s a positive failure: it slows recovery if it doesn’t block it outright.  It does have the positive effect, though, of giving elected politicians and their agency bureaucrats an opportunity to claim to be doing something “for the sake of the poor,” and so of garnering votes for the next election.

Chuck Schumer’s Progressive Solution to Immigration Reform

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Senator Charles Schumer (D, NY) tried to break the impasse over immigration on Sunday, suggesting that Congress pass a law that wouldn’t take effect until after President Barack Obama leaves office.

Yeah.  Because it’s entirely appropriate that the present President—or any President, come to that—refuse his sworn duty to enforce the laws on the Federal books whenever those laws are inconvenient to his ideology.

The distrust of Obama isn’t limited,either, to his decision not to deal with existing immigration law as it stands, his purported increase of deportations notwithstanding.  It has to do with his contempt for those laws, from his implementation of the DREAM Act by executive fiat after it had been explicitly rejected by Congress, to his execution of carbon cap-and-trade by executive fiat after Congress had explicitly rejected that, to his piecemeal rewrite of the Obamacare law by executive fiat, to….

Moral Hazard and Obamacare Welfare

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The recent CBO report on the mid- and long-term effect on willingness to be employed of Obamacare hinted at the moral hazard of Obamacare and of welfare, generally [emphasis added].

In 2014, for example, a single person or a family whose income is 150 percent of the FPL [Federal Poverty Level] and is eligible for subsidies will pay 4 percent of their income for a certain “silver” health care plan purchased through an exchange; if their income is 200 percent of the FPL, they will pay 6.3 percent of their income for that plan.  An increase in income thus raises the enrollee premium (and reduces the subsidy) both because the percentage-of-income formula applies to a larger dollar amount and because that percentage itself increases.  People whose income exceeds 400 percent of the FPL are ineligible for premium subsidies, and for some people those subsidies will drop abruptly to zero when income crosses that threshold.

That’s the mechanism through which this particular iteration of moral hazard works.  It’s a tradeoff of a short-term gain of minor security in return for giving up the opportunity for better lives in the longer term and permanently through working more hours, including to the point of working full-time, thereby increasing their earned income.

This mechanism is, in fact, an enormous marginal tax on the next dollar of earned income, and it hits our poor and marginal citizens the hardest.  This tax reduces the net value of the income increase from taking a better job or working more hours.  It’s a cynical poverty trap.

It’s not that these folks are lazy—that’s a question only in the minds of Progressives trying to distract from their failure by demonizing Republicans and Conservatives.  It’s that this iteration of moral hazard has honest men making entirely rational economic decisions—to stay on the welfare program(s).

Beyond the damage inflicted directly on these subsidized people’s true welfare and their morality, the moral hazard inflicts a broader failure, too:

Apart from harm to individuals, ObamaCare is also wasting human potential because fewer workers mean a less prosperous, less dynamic economy.  Contrary to liberal patronizing, many near-seniors, moms, and the rest like their jobs and contribute to productivity.  The 2.5 million worker ObamaCare job exodus, CBO estimates, translates into a 1.5% to 2% reduction in the total number of hours worked, which means less growth.

That failure, that slowed growth rate, reduces the ability of those who do wish to work more, who do wish to make things concretely better for their families, to do so.  It hits hardest, again, our poor, but this effect extends to the lower- and mid-middle class man who is working and looking to work more and earn more.

Here’s a concrete example, courtesy of Keith Hennessy, via AEIdeas:

  • A family of four with one wage-earner has $35,300 of income this year and no health insurance through work. Because of the significant Affordable Care Act subsidies, this family can buy health insurance for only $1,410/year.
  • The other spouse wants to take a part-time job to supplement their family income. This part-time job would earn them an additional $12,000 per year (gross).
  • But this additional income would reduce their ACA premium subsidy, so they would now have to pay $2,970/year for the same health plan.
  • This reduced subsidy, a direct result of the spouse’s part time work and higher family income, reduces the value of the $12,000 of added income by $1,560 (=$2,970 – $1,410). That subsidy reduction is 13 percent of the gross income increase.
  • So maybe this spouse chooses not to take the new part time job because the net financial benefit of additional paid work just isn’t worth it.”

When all the welfare payments (means-tested, also) for which a family in this income stratum is eligible are included in this sort of calculation, the subsidy reduction becomes a much larger per centage of the income increase—and even can be larger than that increase: a net income reduction from earning more through working.

This is illustrated in the graph below from Pennsylvania State Secretary of Public Welfare that shows how public benefits interact with each other to create welfare cliffs—income cliffs—that “phase” out as income smoothly increases.

What this means is that as people in these low-end earner brackets make more money, they face massive effective marginal tax rates—sometimes the equivalent of 100%.  Every dollar they earn would lose them more than a dollar in public assistance.

Hennessey extended his example [emphasis his]:

My back-of-the-envelope calculation, using H&R Block’s tax calculator, is that the ACA increases this moderate income family’s marginal effective [federal] tax rate by 13 percentage points, from about 37% to about 50%. The 37% includes very little income taxes, but a lot of reduced EITC and reduced refundable child credit, as well as higher employer and employee-side payroll taxes.

Then, the moral hazard question Hennessy asked, but which the Progressives avoid:

Finally, the hard one: do the benefits of the premium subsidy to this family outweigh the costs of trapping this family at this income level by killing the financial benefit they receive from more work, education, training, or other professional advancement?

This is moral hazard.  It’s economically more efficient, at least in the near term—that paycheck to paycheck, welfare payment to welfare payment time frame in which our poor and working poor exist—to not work more, to not earn more, but rather to continue the welfare payments.  This is not a matter of laziness; this is that cynically created poverty trap.

Again, it reaches beyond the welfare recipient, too.  Those who do make the choice to work more are forced by that choice to pay for those who choose to work less: the former are the ones who must pay the taxes that partially cover the welfare payments, with government borrowing covering the rest (a future tax on those working men and their children).

Big Brother

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The state of Washington’s Gambling Commission has found a whole new kind of problem for government to worry about.  It seems that the senior citizens of that fine state have developed a nasty habit of getting together and playing…cards.  That’s right.  Poker.

The Gaming Commission, though, has become aware of the caliber of disaster indicated by the presence of a poker table in their State.  There’s trouble, they say.  And that starts with “T,” and that rhymes with “P,” and that stands for Poker.  And all night long those Washington seniors will be frittering—frittering!—their time away.

Yes, they got Trouble with a capital T right there in Washington State.

In fact, those misbehaving seniors in the Snohomish Senior Center have been playing illegally for over four years, ever since the Snohomish city council banned such social card games in 2009.  No more, though.  Ever alert to serious problems, the Gaming Commission sent those miscreants a letter and shut down their games (they also were playing such nasty things as bridge and pinochle—and doing all that for actual pennies).

Never mind that the Center’s Executive Director, Bob Dvorak, has tried to explain that the center provides an important mechanism for getting an often disengaged group of folks together and defeat their aloneness.

It keeps them from being isolated.  They’re in for the nutritious meal, and they have social skills; they see their friends, they see the staff.

We want them in a safe, fun environment where they’re surrounded by their friends and colleagues.

But Dvorak said that if seniors can’t play for pennies, they might not come at all.  Oh, well.

Gaming has been cleaned up, but there’s still Trouble in Washington.  But now it’s a different kind.  It stems from Big Brother Knowing Better.  Because grown, adult human beings of an age need to be told what to do.