Who Should Obama Nominate?

April 15th, 2010 by rubenr

When it comes nominating someone for the Supreme Court, there are two possible routes for President Obama: He can appoint someone unabashedly liberal, or he can go with someone a little more reserved and possibly moderate.  So what should he do?

Some have pointed out the political implications of the decision, and how appointing someone “too liberal” could alienate voters in the midterm election, and create a rallying cry for Republicans and Tea-Partiers.  But let’s be honest, that rallying cry is going to exist no matter who gets appointed.  We’re talking about a political atmosphere where a largely free-market driven healthcare reform package, supported by numerous economists and the healthcare industry, gets attacked as a socialist government takeover.  To political opponents, whoever gets nominated will be “too liberal”, and Obama’s shortlist is well-experienced and respected enough to make it through Senate Confirmation.

Furthermore, weighing the implications of a single election cycle in determining a Supreme Court nominee is silly.  The Supreme Court has tremendous power relative to any single session of Congress, and it has consistently been the source of incredible changes in our society.  It is the last line of defense to protect minority rights from the tyranny of the majority.  This is the body that invalidated segregation, gave defendants the right to legal counsel, and women the right to choose.  It’s also the reason we have any sort of monetary policy or regulation of commerce.

All that said, Obama’s got a decent list of well qualified folks who could go toe-to-toe with the current conservative-leaning court.  I’m personally a fan of Diane Wood, she has a few “outsider” characteristics (educated at the non-Ivy University of Texas, lives in Chicago unlike most of the east-coasters on the court) and she’s a brilliant jurist who has experience building consensus with those she disagrees with on the 7th Circuit, including two of the greatest conservative/libertarian judges of our time: Frank Easterbrook and Richard Posner.  By all accounts Judge Wood is respected by her cohorts and would do a fantastic job on the court.

Obama could go with someone younger to maximize the time his nominee sits on the court (as Bush did with Roberts), but I’m a fan of quality over quantity.

An interesting point of irony, it’s possible that whoever Obama nominates, given Justice Steven’s “liberal” record (In the 70’s he was considered a moderate conservative… ponder that for a moment), he might continue moving the court further to the right.

Greg Mankiw Cries Wolf Again

April 12th, 2010 by alexm

Greg Mankiw is one of my favorite economists because he helps confirm one of my favorite biases.

Most of us who went to MIT tend to be a bit dismissive of the quality of instruction at “that school up the road” where Mankiw teaches (and where it’s easier than it should be to get an A). The disingenuous nature of the links he posts on his blog repeatedly confirm my bias that spending $50k a year on an MIT education was a much better value than dropping a few more thousand on a diploma from Harvard. I don’t know whether he doesn’t bother to read the papers behind the links he posts, or whether he intends to deceive his readers, cackling maniacally as he types. Either way, I get to feel smug every couple weeks.

This weekend’s gem was a link to a Washington Post article listing five myths about your taxes. Sandwiched in between a set of kind of insightful points came “myth” number three: “Higher taxes could eliminate the federal deficit.”

The ”myth” claims that the federal government would need to raise tax rates by almost 40% to reduce the deficit to 3% of our GDP in 2015. 40%!!! That’s HUGE!

It sounds terrifying, like the federal government has exploded in size and become completely unmanageable since Obama took office. Unlike the Clinton years in which the government actually ran a surplus, and the relatively lean Bush years, where the deficit hovered around 3% of GDP, the authors of the article imply that something fundamental has changed in the past year.

It doesn’t quite pass the sniff test. Laying aside the hyperbole in the title of the “myth” – (clearly, if the government decided to confiscate everything, the deficit would be eliminated), it seems strange that the mere fact that we had the audacity to elect a black president during a recession has made it so that there’s no way, ever, to get the deficit under control again without gutting the federal government.

And as usual, when Greg links to an article with a “striking” conclusion (as he puts it), a deeper reading of the paper behind it shows that the “myth” section, as written, is either an accidental misrepresentation of the truth or outright dishonesty.

The relevant data appears in a table on page 13 of the report. The context of the estimates is mentioned in the text of the paper, but nowhere to be found anywhere in the article Greg pointed to.

It turns out that needing to raise income taxes by almost 40% in order to reduce the deficit to 3% of GDP is actually not based on US tax law but, um, based on a big giant fantasy tax code.

The authors of the study present data for what tax law changes would do under a variety of different assumption sets. The 40% figure is from the “administration baseline deficit” – the numbers that the Obama administration published explicitly to show how terrible the fiscal conditions they inherited from George W. Bush’s administration were. These aren’t numbers that the administration expects to have happen, they’re numbers that, let me repeat, they released JUST to show just how god-awfully the Bush administration ran things (with Greg Mankiw as one of their economic advisors).

This set of numbers assumes that a Democratic President with a Democratic Congress will, all of a sudden, decide to make all of the Bush tax cuts, which they OPPOSED, permanent. That’s never going to happen.

The authors of the paper use this case to provide data for what would happen if there’s too much political fallout from letting the tax cuts expire during a recession. If, on the other hand, the tax cuts (40% of which went to the highest-earning 1% of households, tax cuts that Greg Mankiw helped push) expire as planned, and the rest of the current tax law is maintained as it is currently written, guess what the deficit will be as a percentage of GDP in 2015.

3.1% of GDP. Without doing a single thing to tax law, let alone passing a 40% tax increase. Just by leaving tax law exactly like it is, the budget deficit will be only 0.1% more of GDP than the article’s target in 2015. To reach that target, the federal government would need to collect $43 billion extra in revenue.

However, the authors of the study used information from before when the new health-care bill was signed into law. Fortunately, the new health-care bill (which Greg opposed) takes care of $16 billion of the $43 billion shortfall. So we’re left with $27 billion left to raise. Guess what the real tax increase needed to get the deficit to GDP from current tax law is?

Not 40%. Not 4%. Not even 0.4%.

0.2%. Whup-de-friggin do.

Of course, while I’m being more up-front at this point than the authors of the article, that’s not the whole story either. The Obama administration may decide to extend some of the Bush tax cuts permanently, and the threshold for the alternative minimum tax will almost surely be raised before 2015. So there may need to be more changes in the distribution of the tax code.

But the idea that Congress needs to pass a 40% tax increase in order to keep spending at the same levels is just absurd.

One more note: why target a deficit of 3% of GDP (as the Obama administration is) instead of completely eliminating the federal deficit? The answer is that the size of the national debt in a vacuum is just a number. What matters for interest rates and for the long term outlook is national debt as a percentage of GDP. And when annual deficits are approximately 3% of GDP, economic growth means that the national debt won’t be increasing as a percentage of GDP – basically, we could run at an average of 3% of GDP deficit forever, with no harm done.

Sorry for the lack of profanity this time around ;)

Should AT&T Support Net Neutrality?

April 9th, 2010 by rubenr

There’s been a lot of talk on Net Neutrality this week after the D.C. Circuit Court of Appeals handed down it’s decision in Comcast’s lawsuit against the FCC. Basically, the court denied the FCC the ability to enforce Net Neutrality regulations which prevented Internet Service Providers from discriminating amongst user traffic. At the same time, long-time net neutrality foe AT&T announced that they’re introducing a new product: mini-cell phone towers. You install these in your home and they let you place cell phone calls and access 3G services over your home broadband internet connection. The towers are targeted towards those who live in rural areas, or those in areas where iPhone service is overwhelmed/spotty. Apparently Verizon also has a similar product.

While some people have been criticizing this move as a way of “double charging” customers who already pay substantial amounts for cell phone service, it’s actually a pretty neat innovation to solve the over-capacity or rural area problem. It’s also exactly the sort of innovation that a neutral network can foster that a prioritized/discriminating one can’t. For example, now that Comcast has defeated the current FCC net neutrality regime, it might find that it’s in it’s own interests to throttle or block traffic from AT&T or Verizon mini-towers. What greater disincentive to developing this sort of technology would there be than the chilling effect of knowing that one of your largest competitors can block you whenever they choose?

So, does this mean AT&T’s going to jump on the Net Neutrality bandwagon? Probably not. The telecom industry still likely has more to gain by leveraging their network power to land prioritized contracts through network discrimination than it does from the mini-cell-phone tower market, particularly given it’s entrenched user base. That said, we might begin to see a fracture amongst the alliance between providers like AT&T and Verizon from the cable-centric telecoms like Comcast. The new mini-tower products also poke a hole in one of the telecom’s biggest arguments against Net Neutrality: that they need to discriminate in order to offer quality-of-service for voice services.  AT&T boasts that the 3G / Cell mini-towers work fine and won’t be a drain on the network. That’s refreshing.

With the FCC grasping at how to maintain the net neutrality status quo, we’re likely going to see some movement in congress to pass some net neutrality legislation (perhaps as part of some larger overhaul of our out-dated telecom regs). If we do, the main components I’d want addressed are: 1) that networks not discriminate according to the content or source of traffic [except for blocking attacks from hackers and the like] and 2) that if telecoms want to provide quality-of-service, the consumer gets to decide what they’d like QoS on (whether that be VoIP, Gaming, Video Streaming, etc.) and not the telecoms.

Health care isn’t a fucking car.

April 5th, 2010 by alexm

Steve Levitt, who usually adds a lot of insight to my understanding of political issues, gets it really, awfully, terribly wrong today when he dips his toes into the health care debate on the Freakonomics blog. This post is a train wreck of broken analogies, unresearched bullshit, snide insults, and name-dropping.

Here’s the stinkiest part of the turd:

Imagine that you could show up at a car dealership and have any car you wanted, and as many cars as you wanted, for no marginal cost.  The market for cars would be in complete chaos, and people would have too many cars, and the ones they had would be too nice.

Hey Steve, buying kidney dialysis is a whole lot different than buying a fucking car.

Let’s start with the so-obvious-what-the-hell-are-you-thinking argument.  If you give me a free Lexus, I will take it. I will enjoy driving it more than I like driving my Civic. When I am done, I can resell it. But hospital trips don’t work like that. Think about it. WHO GOES TO THE HOSPITAL AND ORDERS FUCKING KIDNEY DIALYSIS BECAUSE THEY FEEL LIKE IT? Have you ever heard of anyone who does this? “Yeah, man, every week I go get my blood filtered and afterward I feel SO good!!!” Nobody. Does this. Ever.

kidney vs g37

If I offer you free kidney dialysis vs. a free G37, which would you pick?

Open heart surgery? Sure, sign me up! CAT scans? I’ll take three, I just love the way the radioactive shit they make you drink tastes. How about having a catheter shoved up your dick? Or a colonoscopy? Would you like fries with that?

Economic logic that makes sense when you’re talking about fucking donuts turns into bullshit when you’re talking about life-saving treatments.

The only reason anyone wants any of this stuff is because they need it to stay alive. Not because they’re not paying enough out of pocket. They can’t resell it, it’s not any fun, and they all wish they felt better and didn’t need any of it.

Christ, Steve, you’ve got a damned economics degree from MIT. What’s a demand curve look like for something that keeps you alive when you would otherwise die? If you’re reasonably young (meaning you might be affected by the new healthcare bill), here’s what it looks like: YOU’LL PAY YOUR ENTIRE SAVINGS TO THE DOCTORS TO STAY ALIVE.

Vertical. Demand. Curve. NOT like a fucking car. Except when you run out of money. Then you can’t pay, and unless you’re rich, you die.

You think this is great? And better yet, we need to make it so that people pay more out of pocket? So they end up running out of money faster and can die, denied medical treatment, without costing insurance companies so much money? Steve, what the hell are you thinking?

Now, since DeObfuscate holds itself to a higher standard – meaning I can’t skewer Steve without a little bit of analysis, I’m going to show you some real data. Something that neither Steve, nor Gary Becker in his “excellent blog post” bothered to look at before spewing out this trash.

Data driven health care economics.

The best data we have about how much we actually spend on different categories of medical expenditures in the U.S. comes from the Medical Expenditure Panel Survey from the Department of Health and Human Services. The reason that data is considered the most accurate is because they survey households, insurance providers, and health care providers to cross-check all of their data. The full survey reports are available at the link above.

In the next few weeks, we’ll be posting a more rich view of how health expenditures break down.  We will also hopefully be able to make a few projections of what we can really expect to change under the health care reform that President Obama signed into law.  But for the moment, let’s take a look at some of the data analysis performed by the Agency for Healthcare Research and Quality (the agency that runs the survey).  Here are some highlights.

Unlike on cars, most people don’t spend anything on health care.

Sure enough, just because people have health insurance that makes kidney dialysis cheaper, they don’t go take advantage of it.  It turns out that 50% of the population, combined, makes up only 3% of medical expenses.  The other 50% accounts for 97% of the spending.  The distribution is actually even more skewed.  The sickest 1% of Americans account for 22% of all total health care expenditures.

Health care isn’t like cars. If you’re not sick, you don’t want it.

distribution of health care costs

Distribution of Health Care Costs - AHRQ Report

Levitt implies that the sickest 1% are actually not the sickest, but instead just the most opportunistic. They are just the most eager to collect their Infinitis from the subsidized car dealer.  But let’s take a look at what conditions they are actually being treated for.

Treatment of just 15 conditions accounts for nearly half the health care spending

It turns out that health care and cars do actually have one important thing in common.  Did you know that treatment for auto accidents are responsible for more health care spending than any other condition, except heart disease?

Fifteen conditions, including heart disease, auto accidents, cancer treatments and high blood pressure, account for 44% of the total spending on health care in the U.S.  Not surprisingly, cancer is the most expensive per-capita disease, with heart disease right behind it.

The report includes a full table of the top 15 conditions.  The big deal in health care is not that people go to their primary care doctors too much.  It’s that when people get seriously sick, treating them is expensive.  Making them pay more out of pocket won’t help.  To prove it…

Spending distribution doesn’t change much with or without health insurance

The most compelling evidence that health insurance doesn’t behave like the market for cars is that health insurance barely changes the distribution of health care spending.  For people who don’t have health insurance the sickest 5% spend 60% of the health care dollars. For people who do have health insurance, the sickest 5% spend 51% of the health care dollars.

The big difference is that very sick people with health insurance can spend a lot more.  And they do.  We have rationing based on ability to afford care right now, just as Levitt wants it.

Even given that, 38% of the sickest patients have out of pocket health care expenditures that exceed 10% of their income (that number would be a LOT higher without Medicare).  They are already paying large amounts out of pocket, but the cost is not deterring them from getting care.  Why?  Because their motivation for getting care is that they need health care. Not because they are being greedy.

Make ‘em prove it.

Check back soon for some more interesting analysis of the data.  And the next time you encounter an economist pretending that the Tea-Party has the right position on health care because we can’t go giving everyone free cars and we don’t have government-run grocery stores, tell them to go try some kidney dialysis. I hear it’s fucking fun.

Political Implications of HCR

March 24th, 2010 by rubenr

Republican opposition throughout the Healthcare Reform debate was pretty staunch and unified, but it involved a gamble that they could block HCR and thereby sink the Obama presidency.  Not so terrible a strategy, but all the rhetoric and misinformation thrown around by HCR opponents might now come back to bite them.

For one thing, the “American’s Don’t Want This!” line, as powerful as it was, isn’t entirely accurate.  While polls showed about only 45% in favor of reform, there was a decent block of people who were undecided or felt too uninformed to answer.  Furthermore, you have to take these polls in the context of what people thought Health Care Reform does.  Republicans have significantly out-done democrats over the past few months in messaging HCR, such that the general conception is some sort of Government “takeover” of healthcare a-la socialized medicine countries like Canada and the UK.  Even many liberal-leaning friends of mine had concerns about such a non-existent takeover, not to mention the talk of “death-panels”.  It’s likely that these polls measure opposition to the publicly perceived HCR rather than the content of the actual bill, meaning that support for the actual content of the bill was under-represented in these polls.

In fact, now that HCR passed and the media has started to discuss the specifics of what it actually does, it looks like polls are trending such that a majority of people are liking HCR. (though these are just a few polls, and FiveThirtyEight’s been looking at the possibility of a post-HCR temporary “bounce”).  This could be a pretty big problem for Republicans,  the more popular HCR becomes, and the less HCR horror stories come true, the less Republicans can use it as a rallying-cry for November (in fact, an initial “repeal HCR” campaign has already been pulled back by the GOP).

The best bet for Republicans might actually be the legal challenges arising out of various States.  The legal logic that a Health Insurance mandate is unconstitutional is a little weak (we have tax incentives for all sorts of behavior).  But reframing the debate as Democrats doing something unconstitutional may play better than being against a popular bill.  That said, Democrats should be focused on squashing these lawsuits as fast as they can, but they could be tied up in the courts for a while.

Reconciliation: Just for Budgets?

March 10th, 2010 by rubenr

There’s been a lot of talk lately about what the Budget Reconciliation process has or hasn’t been used for, and which party historically uses it more.  This graphic from last Sunday’s New York Times does a great job summariizng the most recent uses of Budget Reconciliation.  While the graphic is useful for displaying why or when both parties use reconciliaiton, I found the following four uses kind of striking:

Those are pretty stark comparisons of Reconciliation Use .