Category Archives: Economics

Miscellaneous economy stuff

Taxes

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It’s tax season, again, because the Obama tax increases are looming at the start of next year—just 6 months off.  It appears that President Obama is bound and determined to tax his favorite disliked group of Americans.  In an interview with North Carolina’s WRAL TV, Obama was asked whether he would veto any bill that extended all the tax cuts. [President] Obama said,

[Y]es, and the reason is, we can’t afford it.

We can’t afford to cut spending?  How does that work, exactly?  President Obama had more to say:

We don’t need more top-down economics.  We need policies that grow and strengthen the middle class.

If he truly believes that second part, when is he going to let the 20+ jobs bills languishing in the Senate to come to a vote so they can be passed, he can sign them, and the middle class can grow be strengthened?

Then he doubled down on his demand to increase taxes.

So let me be clear to [House Republican Leader John] Boehner and everyone else: we should not hold middle class tax cuts hostage any longer[.]

In response to which I have to ask, when are you going to stop, then, holding Americans hostage to your taxing demands?  When will you cancel your tax increase and make the Bush tax cuts permanent, instead of vetoing a tax cut bill that includes all Americans and not just your preferred group?

Then Our Obama added this amazing remark:

With all the other budgetary pressures we have—with all the Republicans’ talk about wanting to shrink the deficit—they would have us borrow $700 billion over the next 10 years to give a tax cut of about $100,000 each to folks who are already millionaires[.]

Really?  What borrow (which, incidentally, the Republicans are not proposing)?  President Obama is saying he can’t find $70 billion of spending cuts in his budget each year?  Obama’s 2012 budget proposed spending $3.8 trillion in spending.  He really can’t figure out how to cut his spending proposal by less than 2%?  Hmm….

Moreover, the tax bill he has said he’ll sign–extending the Bush tax cuts exclusively for his favored Americans–is only a temporary extension.  He won’t even allow that to be permanent.  This despite the fact that the continued uncertainty can have no favorable effect on our economy as individuals and businesses continue to husband their resources against that continued uncertainty.

Oh, yeah: President Obama also is imposing a penaltytax increase of some $285 per year, for not buying Obamacare’s health insurance starting in just 18 months.  And this rises to $2100 per year in 2016.  And those are floors: households that make more than $28,500 per year (or rather less than those $250 thousand Obama “promised”) in those 18 months will have to pay 1% of their income as that penaltytax, and beginning in 2016, households that make more than $83,400 per year (still way less than those $250 thousand Obama “promised”) will have to pay 2.5% of their income as that penaltytax.

Health Insurance vs Health Welfare

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The question of universal health coverage is one well worth discussing at the national level; the goal of universal coverage is to make health care services ubiquitously available, for rich and poor alike.  It’s a laudable goal.  However, in order to have a coherent discussion, it’s necessary to review the terms of the subject.

Too often, though, the discussion assumes that health care and health insurance are so much a part of each other that they cannot be had separately.  This is wrong.  Health care is what you get from your doctor or hospital.  You’re getting treatment for a medical condition, advice about how to treat a medical condition, advice about how to avoid getting a medical condition.  In return for these health care services, someone pays the doctor or hospital money.

Many people pay for these services with cash out of their own pocket, and many more would prefer to do so, were they given the choice.

Others—the vast majority of Americans (I’m eliding the free riders in the market)—pay for these services by buying something we call insurance: they pay a periodic premium to a health insurance provider for a policy that obligates the insurance provider to pay (most of) the costs of a medical condition should that condition actually arise at some time in the future.  The insurance company makes its money by selling lots of such policies on the bet that few enough people actually will incur the covered condition within a given time frame that the aggregated premiums over that time frame will more than cover the actually required medical payouts.  That’s what insurance is, including health insurance: it’s one person transferring part, or all, of a risk of something untoward happening to him to another—an insurance company, for instance—in return for an agreed upon fee.  For that fee, the entity accepting the risk, or the agreed part of it, agrees to cover the cost of that untoward event should it actually occur, with the aggregated fees over lots of such agreements, being enough to cover the required cost payouts.

Health care and health insurance, thus, are entirely separate industries: one is the actual provision of services, and the other is simply a means of paying for those services.

But for the risk transfer, or insurance, industry to work, though, two things must occur: the first is that the fees charged for the risk assumptions must be voluntarily agreed to between the two parties to the risk transfer.  If the fees are dictated to one or the other side, without any market flexibility, they run a very strong risk of being too high for the one party to afford, or too low for the other party to be able to cover the agreed costs.

The other thing that must occur is that the fees must be consistent with the risk assumed.  To take an over-simplified example, if a man has a risk of a medical condition that costs $1,000 to treat, and the likelihood of his incurring that condition within the next year is very high, and he wishes to transfer 80% of that risk to an insurance company (i.e., get the company to pay $800 should the condition arise), then the insurance company must be able to charge a premium that, over the course of a year, sums to $800 in order to break even.  Of course, if the insurance company were to sell that same policy to lots of folks subject to that medical condition, actuarially it’s highly unlikely that all of them—even with the same risk—will incur that condition in the same year.  This would allow the insurer to sell the policy for a lower premium than it could if the customer population were limited to that original single person.

With lots of companies in the market selling policies for a given coverage, competition ensures that a single company does not abuse single-company monopoly power and overcharge.  Nation-wide marketability of that policy both enhances the competition and expands the customer base with the insured-against condition, thus increasing downward pressure on the policy’s premium—the risk transfer fee.  This downward pressure makes insurance more accessible to more people.

The actual situation facing us, though, is a market structure of government limits on the policies offered, government limits on the premiums allowed to be charged, and two critical government mandates: every individual must buy health insurance—must buy those government-limited policies—and every insurer must accept all customers.  There is little to no market flexibility—or pressure—to structure coverages to match the risks being transferred, nor is there much flexibility to match the fees charged to the risks being transferred.  This combination of government limits and mandates is a health welfare program of universal coverage.

My own view is that universal coverage is unnecessary, never minding its laudability, and that health welfare (or welfare generally) is actively suboptimal when it’s the first resort, rather than the last resort after market forces have taken their effect on prices and availability.

Because the welfare program’s risks and fees do not match, and because competition among health insurance purveyors is limited, inefficiencies will rapidly develop in the form of coverage payouts being too great for the premium income in some areas and too little for the premium income in others, with a strong bias toward too little premium income.  While companies’ desires to charge more, including “too much,” would be heavily constrained by competitive pressure, the government’s bias is to hold down costs to its voters, without regard in the short term to the market consequences, and the bias is unchecked.

This drives the welfare program to one or more of three outcomes: the insurance companies must prevail on the regulatory authorities to raise premiums, they must get tax dollar help from the government to make up the shortfall, or they must stop providing that insurance coverage.  All of these represent stark cost increases to the insurees: either they pay higher premiums today (even for conditions for which they do not want coverage or whose risks are very low, because those conditions are included in the required coverage allowed to be sold), their taxes go up tomorrow, or next week they lose their insurance coverage altogether until they move to another company—if one is left in business.  Indeed, this is the rationale for the Individual Mandate requiring everyone to buy insurance: all those extra premiums, hopefully from young, healthy Americans who aren’t likely to need a payout (and who also aren’t likely to want to buy the coverage) are intended to provide those extra monies and so avoid any of the three outcomes.

Dependency

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Let’s review some Federal government policy history.

During the Great Depression, the Roosevelt administration instituted wage floors on labor and price floors on farm produce, which priced men out of an already depressed labor market and priced food out of reach of much of that unemployed population.  As a result, the same administration instituted food stamps to “help” the disadvantaged to obtain food.  This combination of policies made millions of Americans dependent on government for food help.  It also reduced farmers’ independence from government farm supports.

During the same Depression, the same administration instituted Social Security.  The Social Security Act was intended provide supplemental income for America’s retired, who were expected to continue to rely on their own resources and family for the rest of their income, and all Americans were (and are) required to participate.  The Act also  “encouraged” the states to institute unemployment insurance programs, which would be partially funded by the Federal government.

The Social Security side was quickly morphed by subsequent administrations into full income payments to our retired, and for increasingly longer periods of retirement.  An effect of this was to reduce the reliance of millions of Americans on their family for their retired life and to make them dependent instead on government for their subsistence.

The unemployment insurance programs increased state dependence on government for state funding, and it increased individual Americans’ dependence on government for subsistence while between jobs, at the same time commensurately reducing the ties to family local community for support.  Today, unemployment insurance is payable for 99 weeks of being unemployed, greatly extending the dependency of both individual Americans and the states.

The Johnson administration instituted Medicare and Medicaid programs to “help” Americans obtain health care services.  The effect, though, was to contribute sharply to inflation in the cost of health care by artificially expanding demand for the services: Americans are required to participate in the programs, whether we wish to or not.  From this, Medicare and Medicaid transfer payments—the former directly to participants, and the latter to the states, who are strongly “encouraged” to have Medicaid programs—were greatly increased, at taxpayer cost—and at increased dependency of individual Americans and the states on the Federal government for our health needs.

In this context, it’s useful to think about Health Savings Accounts.  HSAs were instituted during the Bush the Younger administration, ostensibly to help Americans to save before-tax money for medical expenses—those rapidly rising expenses just mentioned.  However, HSAs have annual contribution limits, so Americans cannot save overmuch, and Americans must have high deductible insurance policies in order to be eligible for the HSAs.  But those deductibles are out-of-pocket payments, so disadvantaged Americans are priced out of the accounts—they’re still dependent on government for their health care support.

The Obama administration has passed Dodd-Frank (I’ll elide Obamacare in this post; enough has been written elsewhere that the dependency created here is well understood).  This Act creates businesses as dependents on the Federal government for support should they run into market trouble and as dependents on the Federal government for management decisions they will be permitted to make.

Oil and gas company subsidies have been paid by the Federal government since shortly after WWI.  I include them here because of the oil and gas companies’ perceived dependence on them; in fact, the dependence is purely management psychology: these companies do not need the subsidies.  Green energy subsidies have been paid by the Federal government since the early ’80s for biofuels and since the mid -90s for renewables generally and for wind and solar energy in particular.  These companies truly are dependent on the government supports, since they do not have a marketable product and cannot survive in the energy industry without them.

Some illustrations of Americans’ growing dependency on government for their own welfare are these.  Nicholas Eberstadt has noted that the percentage of US households receiving means tested public benefits in general has risen from 7% in 1979 to slightly more than 30% in 2009.  It’s important to note that from 1979 until 1992, the percentage of households receiving means tested public benefits generally paralleled the unemployment rate (except the recession of 1982-83 when the unemployment rate was the slightly higher of the two).  However, by 2003 the percentage of households receiving means tested benefits had jumped to 24%, compared to the then 6% unemployment rate.  This ratio is essentially unchanged today, with the unemployment rate now above 8%.

Moreover, according to Eberstadt, the actual poverty rate fluctuated in the 9%-12+% range during the period to ’92, and since then the mismatch between means tested benefit recipients rates and poverty rates have mirrored the mismatch with unemployment rates.

Moreover, the number of people receiving federal disability benefits (vis., under the Social Security program) grew from 0.05 per person in the 18-64 age band in 1960 (pre-Medicare/Medicaid), to 0.17 in 1970, to 4.6 in 2006. This occurred despite an ever-healthier American workforce over those same 46 years—two generations of Americans.

These are clear indications of Americans’ growing dependency on government and increasing loss of personal responsibility, self-reliance, and reliance on local community resources.

Yet, the politicians in the Federal government are enormously smart people, entirely capable of clear, rational thought.  They were 80 years ago, and are today, fully capable of foreseeing the outcomes of their policies.  What are we to make of the motives of politicians who push them anyway?

The Administration’s Monthly Jobs Report Interpretations

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Don’t let the fact that the following are from a political campaign presser bother you.  The data are straight from the horse’s mouth—the White House’s own The White House Blog.  Thus, these are President Obama’s words, albeit posted by his Council of Economic Advisers Chairman, Alan Krueger.  It’s a long, repetitive list; feel free to skip to the bottom of my post when you get bored.

June 2012: “Therefore, it is important not to read too much into any one monthly report and it is informative to consider each report in the context of other data that are becoming available.” (LINK: http://www.whitehouse.gov/blog/2012/07/06/employment-situation-june)

May 2012: “Therefore, it is important not to read too much into any one monthly report and it is helpful to consider each report in the context of other data that are becoming available.” (LINK: http://www.whitehouse.gov/blog/2012/06/01/employment-situation-may)

April 2012: “Therefore, it is important not to read too much into any one monthly report and it is helpful to consider each report in the context of other data that are becoming available.” (LINK: http://www.whitehouse.gov/blog/2012/05/04/employment-situation-april)

March 2012: “Therefore, it is important not to read too much into any one monthly report, and it is helpful to consider each report in the context of other data that are becoming available.” (LINK: http://www.whitehouse.gov/blog/2012/04/06/employment-situation-march)

February 2012: “Therefore, as the Administration always stresses, it is important not to read too much into any one monthly report; nevertheless, the trend in job market indicators over recent months is an encouraging sign.” (LINK: http://www.whitehouse.gov/blog/2012/03/09/employment-situation-february)

January 2012: “Therefore, as the Administration always stresses, it is important not to read too much into any one monthly report; nevertheless, the trend in job market indicators over recent months is an encouraging sign.” (LINK: http://www.whitehouse.gov/blog/2012/02/03/employment-situation-january)

December 2011: “Therefore, as the Administration always stresses, it is important not to read too much into any one monthly report.” (LINK: http://www.whitehouse.gov/blog/2012/01/06/employment-situation-december)

November 2011: “Therefore, as the Administration always stresses, it is important not to read too much into any one monthly report.” (LINK: http://www.whitehouse.gov/blog/2011/12/02/employment-situation-november)

October 2011: “The monthly employment and unemployment numbers are volatile and employment estimates are subject to substantial revision. There is no better example than August’s jobs figure, which was initially reported at zero and in the latest revision increased to 104,000. This illustrates why the Administration always stresses it is important not to read too much into any one monthly report.” (LINK: http://www.whitehouse.gov/blog/2011/11/04/employment-situation-october)

September 2011: “Therefore, as the Administration always stresses, it is important not to read too much into any one monthly report.” (LINK: http://www.whitehouse.gov/blog/2011/10/07/employment-situation-september)

August 2011: “Therefore, as the Administration always stresses, it is important not to read too much into any one monthly report.” (LINK: http://www.whitehouse.gov/blog/2011/09/02/employment-situation-august)

July 2011: “Therefore, as the Administration always stresses, it is important not to read too much into any one monthly report.” (LINK: http://www.whitehouse.gov/blog/2011/08/05/employment-situation-july)

June 2011: “Therefore, as the Administration always stresses, it is important not to read too much into any one monthly report.” (LINK: http://www.whitehouse.gov/blog/2011/07/08/employment-situation-june)

May 2011: “Therefore, as the Administration always stresses, it is important not to read too much into any one monthly report.” (LINK: http://www.whitehouse.gov/blog/2011/06/03/employment-situation-may)

April 2011: “Therefore, as the Administration always stresses, it is important not to read too much into any one monthly report.” (LINK: http://www.whitehouse.gov/blog/2011/05/06/employment-situation-april)

March 2011: “Therefore, as the Administration always stresses, it is important not to read too much into any one monthly report.” (LINK: http://www.whitehouse.gov/blog/2011/04/01/employment-situation-march)

February 2011: “Therefore, as the Administration always stresses, it is important not to read too much into any one monthly report.” (LINK: http://www.whitehouse.gov/blog/2011/03/04/employment-situation-february)

January 2011: “Therefore, as the Administration always stresses, it is important not to read too much into any one monthly report.” (LINK: http://www.whitehouse.gov/blog/2011/02/04/employment-situation-january)

December 2010: “Therefore, as the Administration always stresses, it is important not to read too much into any one monthly report.” (LINK: http://www.whitehouse.gov/blog/2011/01/07/employment-situation-december)

November 2010: “Therefore, as the Administration always stresses, it is important not to read too much into any one monthly report.” (LINK: http://www.whitehouse.gov/blog/2010/12/03/employment-situation-november)

October 2010: “Given the volatility in monthly employment and unemployment data, it is important not to read too much into any one monthly report.” (LINK: http://www.whitehouse.gov/blog/2010/11/05/employment-situation-october)

September 2010: “Given the volatility in the monthly employment and unemployment data, it is important not to read too much into any one monthly report.” (LINK: http://www.whitehouse.gov/blog/2010/10/08/employment-situation-september)

July 2010: “Therefore, it is important not to read too much into any one monthly report, positive or negative.  It is essential that we continue our efforts to move in the right direction and replace job losses with robust job gains.” (LINK: http://www.whitehouse.gov/blog/2010/08/06/employment-situation-july)

August 2010: “Therefore, it is important not to read too much into any one monthly report, positive or negative.” (LINK: http://www.whitehouse.gov/blog/2010/09/03/employment-situation-august)

June 2010: “As always, it is important not to read too much into any one monthly report, positive or negative.” (LINK: http://www.whitehouse.gov/blog/2010/07/02/employment-situation-june)

May 2010: “As always, it is important not to read too much into any one monthly report, positive or negative.” (LINK: http://www.whitehouse.gov/blog/2010/06/04/employment-situation-may)

April 2010: “Therefore, it is important not to read too much into any one monthly report, positive or negative.” (LINK: http://www.whitehouse.gov/blog/2010/05/07/employment-situation-april)

March 2010: “Therefore, it is important not to read too much into any one monthly report, positive or negative.” (LINK: http://www.whitehouse.gov/blog/2010/04/02/employment-situation-march)

January 2010: “Therefore, it is important not to read too much into any one monthly report, positive or negative.” (LINK: http://www.whitehouse.gov/blog/2010/02/05/employment-situation-january)

November 2009: “Therefore, it is important not to read too much into any one monthly report, positive or negative.” (LINK: http://www.whitehouse.gov/blog/2009/12/04/employment-situation-november)

Hmm….  Apparently all Obama has to say about his dismal unemployment record for all of these three and-a-half years is either, “Therefore, it is important not to read too much into any one monthly report,” or “Given the volatility in monthly employment and unemployment data, it is important not to read too much into any one monthly report.”  Oh, and the “Administration always stresses” this importance.

The problem, though, is that not only are Obama’s words about those dismal reports repetitive, the reports themselves are repetitive—with bad news for unemployed Americans.  So—should we also “not read too much into” all those unemployed Americans?

 

h/t Power Line

Employment Numbers

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Here are some employment and other economic numbers, as we see the continued level of success of President Obama’s policies, more than three years into his term.  Meanwhile all those jobs-related bills the House has passed since the start of 2011 continue to languish in the Do-Nothing Senate.

  • [T]he economy added an average of 226,000 jobs a month in the first quarter
  • [[T]he economy added an average of] 75,000 in the second quarter
  • The unemployment rate remained 8.2%
  • [T]he manufacturing sector contracted in June for the first time since July, 2009.
  • [F]actory hiring average[d] 10,000 a month in the second quarter
  • [[F]actory hiring average[d]] 41,000 a month in the first.