Category Archives: Economics

Miscellaneous economy stuff

Effect of Quantitative Easing

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Martin Feldstein, Council of Economic Advisers Chairman under President Ronald Reagan, described some in a recent Wall Street Journal op-ed.

  • unemployment has declined to 7.6% from 8.2%
  • there has been no increase in the ratio of employment to population
  • no decline in the teenage unemployment rate
  • virtually no increase in the real average weekly earnings of those who are employed
  • decline in the number of people in the labor force in the past 12 months…exceeded the decline in the number of unemployed

And

The Fed’s forecast of substantial employment gains rests on the assumption that real GDP will grow by about 2.5% during the four quarters of 2013 and by more than 3% in 2014.  That would represent a substantial rise from the growth rates of less than 2% in 2012, 1.8% in the first quarter of 2013, and a likely 1.7% in the second quarter.

And

Meanwhile, low interest rates are generating excessive risk-taking by banks and other financial investors.  These risks could have serious adverse effects on bank capital and the value of pension funds.

Additionally, these moves have hurt our seniors, who depend on fixed income instruments for their income.

On the flip side, we have gained a substantially increased risk of high inflation.

In sum, cut it out.

Now’s the Chance

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President Barack Obama has admitted what Senator Max Baucus said a month ago: that his Obamacare is a train wreck coming down the tracks.  Obama has delayed until 2015—i.e., until after the midterm elections—the implementation of the employer mandate.  With this mandate, large employers would have been required to provide health “insurance” for all of their full-time-equivalent employees or face a fine of $2,000 per employee.  (Note that the existence of that fine puts a floor under the per-employee cost of insurance of some $2,000 per covered employee.)

No one was ready for employer mandate part of the train wreck.  Not the employers, although they have been variously cutting back on employees, employee hours, and/or hiring in order to hold their numbers to a bearable cost.  Not the IRS, which quite apart from the criminal aspects of its operation is wholly unprepared—employees or software—to manage its tracking and enforcement task.  Not HHS, which hasn’t even been able to write draft rules good enough for comment, much less for publication.

This represents a golden opportunity for the Republican Party.  They were handed a gift by the Supreme Court in the summer of 2012 when that body upheld the constitutionality of Obamacare.  Had it been struck, the Republicans would have been caught flat-footed with no viable alternative, and the Democrats would have had a field day beating them about the head and shoulders for being whiners without a solution.

Now’s the chance for the Republicans to recover from that unpreparedness.  In addition to voting to repeal Obamacare one more time, the House has from now through late summer 2014 to pass an actual alternative to Obamacare.  Such an alternative might be three bills: one to take down barriers and allow health insurance to be sold interstate, with no mandates for minimum coverage.  Let the doctors, patients, and market decide what policies (and there will be a lot of them) should be available, and a policy available for sale in New York ought to be saleable in California, also; only the market should make that determination, not any Know Better Government.  Moreover, these policies should be saleable for risk-based premiums, not community premiums.  One group of Americans should not be forced to subsidize another.

Another bill could be a sort of Truth in Advertising bill.  The House should pass a standard, plain English language policy format that mandates that each item to be covered or excluded is to be described in these terms, so that a potential insuree (and his doctor if desired) can compare policies from different insurers and be able to understand the tradeoffs he’s getting when he selects one policy over another.  All without having to talk to an insurance agent for the explanation (or even to view the policy at all), unless the insuree wants to.  This bill might also give the health insurance industry two years (say) to come up with their own standard language, or the House-passed format will go into effect.

A third bill could involve the health provision industry.  This one might center on the publication of performance statistics by hospitals and doctors: admission lengths vs readmission rates vs regional averages, surgery types vs success rates vs regional averages, treatment types vs re-treatment rates vs regional averages, and the like.

Senate Republicans should take up the matter, too, and either work to force a Senate (roll call) vote on their version or work to force a Senate (roll call) vote on the House version when it comes up.  Of course either version will fail in the Senate, and we can anticipate Obama veto threats, too.  But the Republicans will have the Democrats, in the runup to the 2014 midterms, on the record, ideally by name on the failed votes, as opposing serious, material health care reform.  Those Democrats can be called to account for their demonstrated preference for a train wreck that their constituencies—we Americans—have broadly and volubly disliked since before Obamacare was enacted.  We’ll also know who the RINOs were that contributed to blocking these reform bills; they can be dealt with in the primaries.

Social Engineering with the Tax Code

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Senators Max Baucus (D, MT) and Orrin Hatch (R, UT), Senate Finance Committee Chairman and Ranking Republican, respectively, had a thought, as described in a recent Wall Street Journal op-ed.  In a letter to their fellow Committee members, they suggested,

To make sure that we clear out all the unproductive provisions we plan to operate from an assumption that all special provisions are out unless there is clear evidence that they: (1) help grow the economy, (2) make the tax code fairer, or (3) effectively promote other important policy objectives.

In other words, they want to zero out all deductions, loopholes, subsidies, credits, carve-outs, and so on in the Federal tax code and start over, including only those that are explicitly defended and defended successfully.

Right idea; flawed execution.  Items 2) and 3) are mutually exclusive.  “Important policy objectives” can only come at the expense of this or that group.

Moreover, “policy objectives” through taxing is inherently ineffective and immoral.  If Congress can’t achieve the policy objective through legislation, it’s because the legislators and their bosses, the sovereign people, don’t want that objective, and so that objective is illegitimate.

Further, the circumscription created on this or that group by taxing for that or this objective limits arbitrarily the victimized groups, and it thereby immorally eliminates those groups’ equality of opportunity—which is supposed to be equal to the opportunities of other groups (vis., the opportunities of the tax-favored groups)—and their ability to exercise such opportunities as are left to them according to their own imperatives, not those dictated by government.

We’ll see how far even this idea gets, though, first in the Progressive-controlled Senate Finance Committee, and then in the Progressive-controlled Senate.

On the other hand, what’s happening along these lines in the Republican- (as opposed to Conservative-) controlled House?  Not much, mostly this year-old chit-chat.  Even on the matter of social engineering through the tax code, the Ways and Means letter and attachment merely identify the existence of damage done by social engineering, but they do not offer anything concrete to do about that damage or about the measures themselves.  At least the two Senators had that much.

Regulation(s) and our Economy

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The American Enterprise Institute‘s AEIdeas has looked at the economic cost of Federal regulation and growth in regulation; this study and one by The Heritage Foundation make…interesting…reading in conjunction with each other.

Here’s the money headline on the AEI report:

Federal regulations have lowered real GDP growth by 2% per year since 1949 and made America 72% poorer

And the money graph:

And now some highlights [emphasis in the original]:

Macroeconomists typically divide government economic activity into four broad classes: spending, taxation, deficits, and monetary policy.  There is, however, a fifth class of activity that may well have important effects on economic activity but that nevertheless has received little attention in the macroeconomic literature: regulation.  Although microeconomists have analyzed both the causes and effects of regulation for decades, macroeconomists have joined the discussion only much more recently, with a number of empirical studies suggesting that regulation has significant macroeconomic effects.

They conclude, in the main:

Regulation’s overall effect on output’s growth rate is negative and substantial.  Federal regulations added over the past fifty years have reduced real output growth by about two percentage points on average over the period 1949-2005.  That reduction in the growth rate has led to an accumulated reduction in GDP of about $38.8 trillion as of the end of 2011.  That is, GDP at the end of 2011 would have been $53.9 trillion instead of $15.1 trillion if regulation had remained at its 1949 level.  One channel through which regulation has reduced output is TFP*.  We find that federal regulation can explain much of the famous and famously puzzling productivity slowdown of the 1970s.

Hmm…

 

* Total-Factor Productivity (TFP) is a variable which accounts for effects in total output not caused by inputs (inputs here are the classic factors of production: raw materials and labor, for instance).  Technology Growth and Efficiency are regarded as two of the biggest sub-sections of Total Factor Productivity, and now, Federal regulation is shown to be a major sub-section, also.

A Bit More on “Climate”

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Recall that Candidate Barack Obama said in 2008 that if

someone wants to build a coal-powered plant, they can.  It’s just that it will bankrupt them because they are going to be charged a huge sum for all that greenhouse gas that’s being emitted.

In President Obama’s speech last week, he announced the next phase of his assault on our economycontributions to climate dysfunction, and in it he’s going after existing coal-fired power plants.  Indeed, Obama’s attack on coal—on cheap energy for the American economy—and on coal-related jobs is now explicit: his climate advisor, Daniel Schrag (formally, Schrag is a member of the President’s Council of Advisors on Science and Technology), also said last week that

a war on coal is exactly what’s needed.

Some of the broader economic damage to be done through Obama’s new policy phase has been estimated by The Heritage Foundation.

First, some highlights from the Heritage Foundation‘s report:

In March 2012, the EPA proposed a rule that would prohibit new power plants from emitting more than 1,000 pounds of carbon dioxide per megawatt of electricity generated.  Without the addition of carbon capture and sequestration…the regulation would effectively ban the construction of new coal-fired plants.*

The President’s recent announcement also threatens existing plants and would adversely affect the more than 1,100 coal-fired generators at nearly 600 plant locations that generate 40 percent of America’s affordable, reliable energy.**

Last year, the EPA finalized new mercury and air toxics standards that will force utilities to use maximum achievable control technology standards to reduce mercury emissions and other hazardous air pollutants.  By the agency’s own admission, the rule will cost $10 billion by 2015 but have only $6 million in purported benefits from mercury reductions.

[Never mind that i]n the absence of these new regulations, US air quality [already] has improved significantly over the past several decades.  Emission of toxic pollutants [already] has dropped as much as 96% since 1980.

Now, some of the economic losses that will occur by 2030 according to the Heritage Foundation:

  • Employment falls by more than 500,000 jobs;
  • Manufacturing loses over 280,000 jobs;
  • A family of four’s annual income drops more than $1,000 per year, and its total income drops by $16,500 over the period of analysis;
  • Aggregate Gross Domestic Product (GDP) decreases by $1.47 trillion;
  • Electricity prices rise by 20%;
  • Coal-mining jobs drop 43%; and
  • Natural gas prices rise 42%.

In sum, Obama’s war on coal will cut GDP by $1.47 trillion by 2030.  All for no impact at all on our climate, since atmospheric CO2 (the biggest target of this war) is well-established as a trailing indicator confirming warming that’s already occurring and increasing health of the planet.

 

*It’s important to note that carbon capture has never been successfully demonstrated in a production-sized mechanism and that no one—including Obama’s administration—has been able to figure out what to do with the “15–20 super tankers’ worth of liquid carbon dioxide that…carbon capture would create” annually.

**This also ignores the impact on an already marginally stable American electric power grid that cannot handle such a catastrophic drop in power production while demand continues to rise—or would with an actual economic recovery.

 

h/t Power Line