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Yes, Obamacare will significantly reduce our Debt

Today, a former Bush administration official (Charles Blahous) made a big splash when he wrote a new “study” saying Obamacare will increase the United States’ debt by $340 billion over ten years. This is exactly the opposite of what every independent organization has found about the law. The CBO, Washington’s authoritative legislation scorer, says that Obamacare will reduce our debts by $100-200 billion (depending on what time period you use) over a decade. So who’s right?

Not the new guy. Charles Blahous came to his figure using a dishonest accounting trick that does not reflect the costs of the ACA at all. Basically, he assumed that Medicare spending would be cut drastically, starting in 2017. No one in all of America actually thinks (or ever thought) this would happen. Since Obamacare makes it explicit that Medicare funding will not be severely curtailed in 2017, Blahous says that Obamacare will increase the deficit.

His assertion is preposterous. Obamacare makes Medicare spend its money more efficiently, cutting its spending by about $500 billion over a decade. But in twisted Blahous’ logic, Medicare cuts actually increase the deficit! What? If he used this same logic against the Republicans’ budget (which he wouldn’t) he would also find that their budget significantly increases the debt. That’s because his method is a preposterous way to look at our debt.

For a less succinct, more technical account of how this works, read Jonathan Chait or Paul van de Water.

2012
04/11
CATEGORY
article critiques
health care
taxes and spending
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Romney responds to Obama’s Kansas speech

Readers might recall that one of my favorite writers is a man named Jonathan Chait,  who now writes for New York Magazine. Today he made an excellent post on Romney’s rebuttal to Obama’s economic speech in Kansas earlier this week. In that speech, Obama decried the growing wealth inequality in America and called for more of a “fair deal” for the nation’s middle class. Obama also tore down Republicans’ supply-side economics saying that plastering the rich with money only helps, well, the rich. Mitt Romney, Obama’s likely GOP opponent next year, responded with the typical Republican boilerplate of calling anything he doesn’t like “communism,” and “redistribution of wealth.” Chait says:

In a speech today (excerpts of which have already been released by his campaign), Mitt Romney accuses President Obama of trying to create complete economic equality:

“President Obama is replacing our merit-based, opportunity-based society with an entitlement society,” Romney is expected to say. “In an entitlement society, everyone is handed the same rewards, regardless of education, effort and willingness to take risk. That which is earned by some is redistributed to others. And the only people to enjoy truly disproportionate rewards are the people who do the redistributing — the government.”

Really? Obama’s plan is for everybody in society to have the same rewards? So, under Obama’s plan, I get to have the same stuff that Mitt Romney has?

This accusation is approximately as accurate as claiming that the Republican party wants to pass laws forbidding poor people from making more money. Yet this absurd claim is so common nobody even thinks to challenge it anymore….

Obviously, not even the most left-wing Democrat proposes anything of the sort. The actual Democratic platform is to impose a slightly more progressive tax code, close to what prevailed under the Clinton administration, and to finance some basic public provisions while doing very little to stop rampant rise in income inequality. The right’s inability to argue against that actual program, continuing instead to pretend that they’re arguing against a world in which nobody can have more money than anybody else, is deeply revealing of its lack of confidence in its own argument.

That last sentence is what  I really liked about Chait’s article. If Obama’s and Democrats’ plans are so bad, then why don’t we ever hear any intelligent discussion about why the rich cannot possibly afford to pay more money in taxes than they do now? Instead we always get an earful about how Democrats want to make the US into a communist utopia. Give me a break.

2011
12/08
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article critiques
news commentary
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At least he’s honest…

This guy, who wrote a column in Forbes yesterday is basically a conservative, supply-side stereotype in every way except one: he’s honest about his policies and about what they would do. Usually when someone with views as extreme as this guy starts talking, they at least try to pretend that tax breaks should go to everybody (not just the rich) and that giving gobs of money to the super-wealthy will help the rest of us. Not this guy (can he really be an editor at Forbes??). Observe:

Obama will never do it, but the only tax cuts that are effective are those that impact the “vital few”, or the highest earners whose capitalistic exploits employ us and raise our living standards on a daily basis. Much as naive minds want to believe that the “great middle” is the source of our nation’s economic strength, the more realistic truth is that we gain our strength from the kind of individuals that populate the Forbes 400 and other rich lists…

Businesses are not in business to create jobs. If this is doubted, try to get your venture funded by leading with your plan to hire lots of workers. You won’t. Businesses attract investment precisely because they promise to get the most output with as little labor input as possible as a way of achieving profits. Of course, profits attract more investment that leads to new ventures, and jobs are invariably created. But to pay businesses to hire is not the spark that will ignite the economic rebound. It puts the cart before the horse. (italics mine)

That’s supply-side economics in all its naked glory. He outright admits that he thinks that the only tax cuts that matter are those that go to the richest of the rich. These people already only pay 21 percent of their income in taxes, a much lower percentage than the typical middle class family, but damn it! They need to pay less! I take it that this person’s ideal tax system would draw all of its income from the poor and middle class while taking nothing from the rich.

And when the rich pay less in tax, it’ll help everybody else out because these people are “job creat…. O wait. Our ever-so-helpful author informed us that businesses are not out to create jobs. Jobs are just the unfortunate and costly by-product of attaining wealth. There goes that Republican talking point.

I do think that a lot of Republicans (not all) think this way. However, they usually try to cover it up and appear fair by saying that they want tax breaks for all, not just the rich. The Bush tax cuts did toss a couple nickels toward the poor even as the rich got loaded up with Benjamins. And Republicans usually say that giving money to the very rich will create jobs for the rest of us. You have to do those kinds of things to achieve popular support. Its good to see that this author has dropped all pretense and told us the truth about businesses and supply-side economics. Neither care anything for you if you aren’t worth $50 million. As I said, at least he’s honest.

2011
09/13
CATEGORY
article critiques
economics
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The Wall Street Journal and the question: Did the Stimulus work?

The Wall Street Journal authored an editorial today titled “Why the Stimulus Failed” in which they cite a new study which they claim reports that the stimulus failed to deliver jobs. They could not be more wrong about this study and what economic literature says about the stimulus. The authors of the study interviewed businesses that had received stimulus funds, asking who had been hired by those firms with stimulus funds. The WSJ believes this study proves:

The lesson of such on-the-ground knowledge is that the stimulus was a lost opportunity. In practice it became a shotgun marriage between an economic theory justified by computer models and 40 years of liberal social priorities (clean energy, Medicaid expansions and the rest). This produced the 9.1% unemployment we now have.

Woah, woah, the stimulus produced our unemployment rate??? Was the editorial board at the WSJ  asleep during that little thing called the financial crisis? Now I’m not economist, but I think THAT may have been what caused our unemployment rate to grow this large, especially considering the fact that no credible study (certainly not the one they cite in their editorial) has ever shown that the stimulus cost the US jobs.

So what does this study show? To start with, the Mercatus Center’s study is not a comprehensive examination of the stimulus. In total, the $800 billion stimulus is estimated to have saved or created 2.5 to 4 million jobs. The authors of this study are only looking at the new (as opposed to the saved jobs) that resulted from the direct government spending in the stimulus. This is important because they never look at the third of the stimulus that was made up of tax cuts and they never look at the jobs that were saved because of the stimulus. Of the third of the stimulus that they did look at, the authors found:

Hiring isn’t the same as net job creation. In our survey, just 42.1 percent of the workers hired at ARRA-receiving organizations after January 31, 2009, were unemployed at the time they were hired (Appendix C). More were hired directly from other organizations (47.3 percent of post-ARRA workers), while a handful came from school (6.5%) or from outside the labor force (4.1%)(Figure 2). Thus, there was an almost even split between “job creating” and “job switching.”

Of course another way to look at this (as Jonathan Chait points out) is that firms were over four times more likely to hire the unemployed as the employed (since 90% of our workforce is employed  and 10% unemployed). Chait also asks (his article is worth the read): What do the authors “think happens when a new job is filled by moving a worker from another job”? The person who “job switches” probably got replaced by their old firm after another firm hired them with stimulus funds. Job-switches can be jobs-created as well!

Contrary to the beliefs of the WSJ, the stimulus was not just something dreamt up in Paul Krugman’s computer and then justified by mathematical algorithms at the CBO. There have been many studies that have used various methods to study the entire effect of the stimulus as a whole. This lazy editorial board could have done the work to find these studies, but doing so would not have helped them to make their biased, partisan point. Here is a listing and an evaluation of nine different studies of the effect of the stimulus. As a whole, they agree that it worked.

But don’t let facts get in your way, WSJ,  what would you have done as the economy was crashing around us in early 2009?

The economy would have benefitted far more if the government had instead improved the incentives for people and businesses to invest, produce and grow.

Well, doesn’t lowering taxes and giving businesses lucrative government contracts “improve their incentives  to invest, produce and grow?” Or does the WSJ just think that the Obama administration should have passed fewer regulations than the Bush administration did? Of course, the Obama administration did all of those things in 2009. So, can someone please tell me if they see the WSJ’s integrity laying around anywhere? They seem to have lost it.

2011
09/08
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article critiques
economics
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The Wall Street Journal and “Obamacare”

It  always really disappoints me when I see ideologically biased, dishonest journalism on display. Today, Stephen Moore wrote a post in the Wall Street Journal . It reads in part:

ObamaCare Doesn’t Add Up

A new CBO report finds that the costs of Medicare and Medicaid will drive federal spending to all-time highs in coming decades. (1)

…

What is conspicuously missing from this report is the magical windfall from the new health law. CBO reports that it is “using the same growth rates that would have been applied in the absence of the legislation.” Now they tell us. Hence, Medicare alone is projected to nearly double over the next 25 years, from 3.7% of GDP to almost 7% by 2035. (2)

CBO warns that ObamaCare’s purported payment cuts to doctors and hospitals and the hoped-for reductions in the growth of the insurance subsidies would be “difficult to sustain over a long period.” Let us translate all this mumbo jumbo: The ObamaCare cost savings are mostly bunk. (3)

None of these scary trends is inevitable, and there is still time to get health-care costs contained. But now even CBO seems to agree that ObamaCare bends our health-care bills up, not down, in the long run. (4)

Stephen Moore seems to either completely miss (or just selectively misrepresent) the point of the CBO report. (For clarification, the CBO is the Congressional Budget Office, the non-partisan scorekeeper for all Congressional laws and bills) Let’s go point-by-point:

(1) To start, if there seems to be some tension between the headline and the sub-head its because the sub-head is mostly true while the headline is all sensational. The bills for Medicare and Medicaid will increase in the coming years because health care costs as a whole will increase. If healthcare for everyone else is increasing at a breakneck pace, its only natural that healthcare for the elderly, disabled, young and poor will also increase considerably. Of course, that has nothing to do with “Obamacare,”  which is what the headline leads you to believe.

(2) When the CBO says it is “using the same growth rates that would have been applied in the absence of the legislation,” its saying that it is using those growth rates as a baseline  and then it will “incorporate the projected effects of the legislation on the level of federal spending for health care”  as they affect the baseline they established. Somehow, surely by accident, Moore quoted the CBO out off context so he could make an ideological point not represented by the evidence. Either that, or he was commenting on a report he could not understand.

(3) In one of the two scenarios the CBO presents, it assumes that all the cost savings contained in the Affordable Care Act (ACA) will keep costs down for the coming decade, but then after that, they will prove “difficult to sustain.” Moore thinks this means “the ObamaCare cost savings are mostly bunk,” but the CBO doesn’t. It still projects that the ACA will save money for a decade but thinks that after that a future Congress will vote to spend more money to override some of the savings.

(4) Finally, Moore says that “even CBO seems to agree that ObamaCare bends our health-care bills up.” That is NOT what the CBO says. In the more pessimistic scenario the CBO says that “excess cost growth” in Medicare will drop 88 percent in the first decade of the ACA compared to what it was from 1985-2007. Thereafter, Medicare’s excess growth will still be 25 percent lower than it was before. (pgs 43, 45) Even if everything goes wrong with the law that the CBO thinks may go wrong with it, it will still save money (bend the cost curve down), according to the CBO.

In conclusion, the CBO’s conservative scenario projects that the ACA will save money and everything in this article is a distortion or misrepresentations of what the CBO says.

2011
06/29
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Honesty and the Debt Ceiling

Frequent readers of this blog will find that my biggest pet peeve is dishonesty. I truly don’t mind people with opinions different than my own (and I love to debate with them) but I really can’t stand it when people lie or are intellectually dishonest. So, much of my blog will focus on calling out and correcting lies floating around in the public sphere. This week, I start with a particularly bad and dishonest column on the debt ceiling.

The political negotiations on raising the United States’ debt ceiling are extremely important because they will determine whether the US is plunged back into recession this year and what our government programs will look like in the years to come. Because of the importance of these negotiations, there is a lot of demagoguery and dishonesty floating around about the US debt and about the political talks which are aimed at bringing down the debt. One particularly egregious example is this column by Yuval Levin in the conservative magazine The Weekly Standard entitled “We Don’t Estimate Speeches.”

He starts by talking about a recent report by the non-partisan, score-keeping Congressional Budget Office (CBO) where it finds that if the US Congress continues on its current, likely spending trajectory, the US will rack up a large (and unsustainable) amount of debt in the coming decades. He does this to scare his audience and to let them know that the US debt is, indeed, a huge problem. However, along the way he conveniently forgets to mention that the CBO, in the same report he cites, also produced another scenario, one in which the debt is not as large a problem in the US’s future. But, the CBO’s “extended-baseline scenario” projects that the Bush tax cuts will fully expire (as they are scheduled to) while letting the Alternative Minimum Tax expand (as the law says it should), along with a couple other fixes which are anathema to Republicans, so Levin just talks about the scarier scenario. (More on this at the CBO and at Ezra Klein’s blog)

Anyway, now that his audience is sufficiently scared about the prospects of an ever-growing and strangling US debt, Levin starts talking about the debt negotiations. Along the way, he offers the obligatory praise for the Ryan budget that is now mandatory among Republicans. (I’ll address the Ryan plan at a later date but here’s a nice non-partisan evaluation of the tax cuts for the rich in the plan.) Here’s his summary of the debt negotiations:

Until last week, that fight had been focused on negotiations led by Vice President Biden. Those talks certainly revealed something about the Democrats’ priorities: In the midst of a spending-driven debt explosion and a weak economy, Democrats in Washington want to raise taxes. But the negotiations also revealed the continuing unwillingness of the president to make specific proposals about how to reduce spending, reform entitlements, and bring the debt under control. On June 23, House majority leader Eric Cantor (who had represented House Republicans at the negotiations) decided he’d had enough, and left the talks in order to force the issue to a higher level and compel the president to get specific.

Egads! Tax increases? The nerve of those Democrats! You mean that in the middle of debt-reduction talks, the Democrats are proposing a way to decrease the debt by raising revenue?? Insane! Let’s forget for a minute (Levin certainly has) that total federal tax revenue is already at the lowest levels since 1950 (table 1.2). Acknowledging that inconvenient fact would mean that we are not in the middle of a “spending-driven debt explosion,” but, in fact, in the middle of a debt explosion caused by the government taking in too little revenue (Hellooooo Bush tax cuts).

Levin is probably right though. We are in the middle of a weak economy and now is not the time to raise taxes because when the government taxes, it takes dollars out of the economy, and right now the economy needs all the extra dollars it can get. Of course, if Levin was being intellectually honest he would oppose any government spending cuts for the same reason. If the government cuts spending, it also takes dollars out of the economy, hurting economic growth at a particularly fragile economic moment. That contradiction, sadly, is central to Republican thinking at this time. In their view, the government can’t raise taxes because it will hurt the economy, but the government can cut spending all it wants, even though that too will certainly hurt the economy.

Also, its not like Democrats just proposed increasing taxes out of nowhere. They proposed taxes as a deficit-reduction measure in negotiations over how to reduce the deficit. Its not like they just enjoy raising taxes for the hell of it.

Then Levin tries to say that the President is not being “specific” enough in the debt negotiations. Huh? The debt negotiations are going on behind closed doors. Levin doesn’t know what’s been specifically proposed. None of us do. Eric Cantor, the lead Republican negotiator, was the one who withdrew from the talks. When he stopped negotiating for the Republican side he said it was because he could never support a tax increase as part of the deal, not because the President wasn’t being “specific” enough. By all accounts, the negotiators have plenty of very specific cuts hammered out, the only sticking point is whether taxes will also be raised as part of this deal. Republican obstinacy on taxes killed this round of negotiations, not a lack of “specificity” on the part of the President.

Levin’s account of the negotiations is all the more confusing because the President wasn’t even involved in the negotiations. Vice President Joe Biden was handling them for the Democratic side. The President presented a debt reduction vision in a speech earlier this year (the “Speech” referred to in the title of Levin’s column) but has wisely left the actual deal to be worked out by the VP and the Congressmen who will actually be voting on the deal. Would it make any sense at all for the President to be out making speeches and policy proposals while negotiations are still ongoing? Wouldn’t doing so just undermine and distract from the talks that were already happening? In one last hypocritical moment, Levin fails to mention that the Ryan plan that he adores also fails to specify what cuts it will make in tax expenditures. The Ryan plan has to make huge cuts in tax expenditures in order to afford lowering taxes on the rich, but Levin doesn’t take Ryan to task for being mum on what specifically he would cut.

For the sake of brevity, I’ll stop my critique there. Its a shame that you can get a job writing this kind of drivel. Disputes? Questions? The comment box awaits!

2011
06/27
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article critiques
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