On Republican Health Care Talk

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December 14, 2013, 11:19 am 14 Comments

The Neo-paleo-Keynesian Counter-counter-counterrevolution (Wonkish)

OK, I can’t resist this one — and I think it’s actually important.



Brad DeLong reacts to Binyamin Appelbaum’s piece on Young Frankenstein Stan Fischer by quoting from his own 2000 piece on New Keynesian ideas in macroeconomics, a piece in which he argued that New Keynesian thought was, in important respects, a descendant of old-fashioned monetarism. There’s a lot to that view.



But I’m surprised that Brad stopped there, for two reasons. One is that it’s worth remembering that Fischer staked out that position at a time when freshwater macro was turning sharply to the right, abandoning all that was pragmatic in Milton Friedman’s ideas. The other is that the world of macroeconomics now looks quite different from the world in 2000.



Specifically, when Brad lists five key propositions of New Keynesian macro and declares that prominent Keynesians in the 60s and early 70s by and large didn’t agree with these propositions, he should now note that prominent Keynesians — by which I mean people like Oliver Blanchard, Larry Summers, and Janet Yellen — in late 2013 don’t agree with these propositions either. In important ways our understanding of macro has altered in ways that amount to a counter-counter-counterrevolution (I think I have the right number of counters), giving new legitimacy to what we might call Paleo-Keynesian concerns.



Or to put it another way, James Tobin is looking pretty good right now. (Incidentally, this was the point made by Bloomberg almost five years ago, inducing John Cochrane to demonstrate his ignorance of what had been going on macroeconomics outside his circle.)



Consider Brad’s five points:



1. Price stickiness causes business cycle fluctuations: You clearly need price stickiness to make sense of the data. However, there is now widespread acceptance of the point that making prices more flexible can actually worsen a slump, a favorite point of Tobin’s.



2. Monetary policy > fiscal policy: Not when you face the zero lower bound — and that’s no longer an abstract or remote consideration, it’s the world we’ve been living in for five years. And Tobin, who defended the relevance of fiscal policy, is vindicated.



3. Business cycles are fluctuations around a trend, not declines below some level of potential output: This view comes out of the natural rate hypothesis, and the notion of a vertical long-run Phillips curve. At this point, however, there is wide acceptance of the idea that for a variety of reasons, but especially downward nominal wage rigidity, the Phillips curve is not vertical at low inflation. Again, a very Tobinesque notion, as Daly and Hobijn explain.



4. Policy rules: Not so easy when once in a while you face Great Depression-sized shocks.



5. “Low multipliers associated with fiscal policy”: Ahem. Not when you’re in a liquidity trap.



I do think this is important. Among economists who are actually looking at recent events, not doing a see-no-Keynes, hear-no-Keynes, speak-no-Keynes act, there has been a strong revival of some old ideas in macroeconomics. It’s not just new classical macroeconomics that’s in retreat; we’re also seeing, within the Keynesian camp, a distinct if polite rise of neopaleo-Keynesianism.



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December 14, 2013, 10:38 am 46 Comments

Inequality and Incomes, Continued

Some further numerical thoughts on the right of inequality to be considered a “defining challenge.”



Many of the participants in our economic discourse start with the working presumption that inequality is a second-order issue, that the effects of rising inequality — to the extent that these effects are considered worth mentioning at all — are minor compared with the effects of economic growth or the lack thereof. This presumption is so ingrained in the discourse that hardly anyone looks at the numbers. But when you do look at those numbers, you get a shock.



In my previous post I looked at income changes since 2000, and argued that for the bottom 90 percent rising inequality has actually cost more than the economic slump. Obviously that calculation depends on the starting date — and you might also wonder whether the period since 2000 is exceptional.



But look, first, at the long-term trend in inequality. Piketty-Saez have the income share of the bottom 90 percent falling from two-thirds in 1979 to one-half now; that’s roughly 0.9 percent lopped off their income growth per year, for more than three decades. CBO’s numbers aren’t exactly comparable, but they show the income share of the bottom 80 percent declining from 57 to 47 percent over 1979-2007, which means income growth 0.7 percentage point per year slower than in the constant-inequality case.



Those are big numbers. They’re big enough that even if we restrict ourselves to the period 2007-13 — that is, to the Great Recession and the Not-So-Great Recovery — they suggest that the decline in middle-class incomes owes as much to rising inequality as it does to the depressed state of the economy. And this is true even though we’ve suffered the worst economic crisis since the 1930s!



You might be tempted to say that the depressed economy still deserves priority, because recovery is in everyone’s interests, so we should be able to achieve consensus on good short-run macro policies even as we debate inequality. That is, you might be tempted to say this if you’ve been living in a cave these past five years. In practice, debates over macroeconomic policy are just as polarized as debates over inequality — and along pretty much the same lines. That is, the same people who screech “Class warfare!” if you bring up the rising share of the 1 percent also shriek “Greece! Zimbabwe!” if you advocate expansionary fiscal and monetary policies.



So once again, the focus on inequality isn’t a diversion. It’s the right way to move this discussion.



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December 14, 2013, 8:48 am 18 Comments

TPP and IP, A Brief Note

Dean Baker takes me to task over the Trans Pacific trade deal, arguing that it’s not really about trade — that the important (and harmful) stuff involves regulation and intellectual property rights.



I’m sympathetic to this argument; this was true, for example, of DR-CAFTA, the free trade agreement with Central America, which ended up being largely about pharma patents. Is TPP equally bad? I’ll do some homework and get back to you.



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December 14, 2013, 8:36 am 83 Comments

Inequality As A Defining Challenge

It has taken an amazingly long time, but inequality is finally surfacing as a significant unifying issue for progressives — including the president. And there is, inevitably, a backlash, or actually a couple of backlashes.



Read more…



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December 13, 2013, 7:55 pm 17 Comments

Friday Night Music: 2000 Miles

Tis the season for bah humbug — the Christmas muzak is almost unavoidable. And I suppose I should be presenting an antidote. Instead, though, I find myself hearing Chrissie Hynde in my head, which is OK:







By the way, for those who missed it, the finale to last weekend’s Lucius concert:





And while it’s not on their album, they did play “Genevieve” — awesomely. I wish I had a video of that!



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December 13, 2013, 10:36 am 185 Comments

A Health Care Mystery Explained

Ezra Klein is puzzled (or at least says he is; I suspect he understands it perfectly) by Republican hypocrisy on health care. For many years the GOP has advocated things that are supposed to bring the magic of the marketplace and individual incentives to health care: higher deductibles to give people “skin in the game”, competition among private insurers via exchanges — competition that would include reducing costs by limiting networks — and, of course, for cuts in Medicare. Now the GOP complains bitterly that some Obamacare policies have high deductibles, that it relies on the horror of exchanges, that some networks are limited, and that there are cuts in Medicare.



Klein suggests that Republicans are really upset by other aspects of Obamacare, but are going after the easy targets even though they’re attacking their own ideas. In a sense he’s right, but as I said, I suspect that he knows that the issue is both bigger and simpler than he says.



What underlies what Jonathan Chait calls the Heritage uncertainty principle? He describes it thus:



Conservative health-care-policy ideas reside in an uncertain state of quasi-existence. You can describe the policies in the abstract, sometimes even in detail, but any attempt to reproduce them in physical form will cause such proposals to disappear instantly. It’s not so much an issue of “hypocrisy,” as Klein frames it, as a deeper metaphysical question of whether conservative health-care policies actually exist.



The question should be posed to better-trained philosophical minds than my own. I would posit that conservative health-care policies do not exist in any real form. Call it the “Heritage Uncertainty Principle.”



Well, actually it’s pretty simple. The purpose of most health care reform is to help the unfortunate — people with pre-existing conditions, people who don’t get insurance through their jobs, people who just don’t earn enough to afford insurance. Cost control is also part of the picture, but not the dominant part. And what we’re seeing right now, in any case, seems to confirm a point some of us have been making for a long time: controlling costs and expanding access are complementary targets, because you can’t sell things like cost-saving measures for Medicaid and limits on deductibility of premiums unless they’re part of a larger scheme to make the system fairer and more comprehensive.



And here’s the thing: Republicans don’t want to help the unfortunate. They’ll propound health-care ideas that will, they claim, help those with preexisting conditions and so on — but those aren’t really proposals, they’re diversionary tactics designed to stall real health reform. Chait finds Newt Gingrich more or less explicitly admitting this.



Hence the rage of the right. Here they were, with a whole raft of ideas they could throw out, like chaff thrown out to confuse enemy radar, to divert and confuse any attempt to actually provide insurance to the uninsured. And those dastardly Democrats have gone ahead and actually incorporated those ideas into real reform.



Once you realize this, you also realize that people who warn that by opposing Obamacare Republicans are undermining their own proposals are missing the point. Yes, the Ryan plan to privatize Medicare looks a lot like Obamacare — but Ryan comes to Medicare not to save it, but to bury it, so the question of whether his plan could work is irrelevant.



There’s no mystery here; it’s just top-down class warfare as usual.



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